Good time to invest in equities: Vallabh Bhanshali

Vallabh Bhanshali, Chairman of Enam Securities, sees no serious selling and feels this is a good time to invest in equities. He feels that the volatility in the market is reducing and that has prevented investors from buying. He said that concerted global monetary and fiscal action was a positive cue. He added that costs and working capital have fallen drastically and that was another positive cue for the market. He believes prices have become very attractive from a long-term perspective.

Bhanshali said that the company was very confident about investor-fear giving way to evaluation and added that he has not changed his long-term fundamental view about strong companies.

Bhanshali feels that short-term investors would continue to be cautious.

Bhanshali fears that projects stuck half way are going to suffer but said that planned projects would do well. He added that big companies would find it easier to tap capital in the next few months. He feels companies are confident about managing their bottomline due to falling costs.

Here is a verbatim transcript of the exclusive interview with Vallabh Bhanshali on CNBC-TV18. Also watch the accompanying video.

Q: What was the mood like today? Did companies sound cautious and circumspect after the kind of numbers which have been tumbling out these last few weeks?

A: Actually the companies that were present today were very confident. Investors had an open mind. The fear is starting to give way to evaluation. The companies seem to look at the world in a very micro way. the long-term view has not changed at all and they seemed all set on going ahead with their expansion and being well-funded.

Q: What did you hear from the investors? Has the mood stabilised somewhat because last three-month everybody has been completely frozen with the kind of price action that’s been on the screen – has that given way to some kind of rational thought where people are looking at individual valuations and they are even considering putting some money back to work or that stage hasn’t arrived yet?

A: Investors were conscious that volatility is coming down. There was an unprecedented volatility over the last five-six weeks which would prevent the best of people to do anything at all. So with this lower volatility, a lot of confidence is coming back relative to what we had seen earlier. Monetary and fiscal action has begun action and is just not stopping. China has kicked off a big programme and others are expected to follow.

A lot of good news that came in the last few weeks has not been noticed but is now being noticed by the intelligent investors. The cost and working capital both have come down dramatically as material prices, whether petrochemical, chemical or metal, are down 50% to 75% and in some cases as much as 90% and this is very good news for consumers and for companies. There is so much that has to get adjusted in this quarter that people will see price to start normalizing in next quarter onwards generally speaking.

Q: Just on that subject of investor climate right now, are people willing to go out and make capital commitments to this market, or do you think they are going to wait and watch a while and perhaps as you indicated money flows can only be expected starting next year?

A: We are seeing long-only funds starting to get committed. They are choosing their companies carefully and they are starting to invest in it. I think this process from the longs point of view has already begun.

People who have a shorter-term outlook or no steady pool of capital to back them, will probably be more cautious. But the longs and the pensions and people like them are definitely starting to buy, and we can see it all around in several stocks.

Q: There was a tremendous global response today to what happened in China. Is that the shape and form you think policy action will begin to take now and can that be replicated in India in any form?

A: I think so. One has to see the quantum of it. We also have an election year ahead. Each country has its own set of issues. But generally speaking the Brics and the countries in Asia will probably pass the stimulus programme of this kind.

I also think the officers committee, which has been appointed by the Prime Minister, will come up with recommendations like that. Unofficially we hear that a lot of ideas are being talked about quite seriously already.

Q: You meet a lot of different kinds of investors at such conferences. Do you get the sense that most of the forced deleveraging or the redemption led pressures have begun easing somewhat or are they expected to continue for another 3-6 months?

A: I met lots of investors who said that they had no serious redemption pressure at all. We had insurance companies and others also. The theme was pretty hopeful that the worst is over in terms of investor sentiment and particularly in only equity schemes. Various schemes have balanced schemes and other criterias may be different. This is not the time to exit equities; if at all it's time to enter that.

Q: What about availability and access to capital, what did you hear from companies about how worried they are about accessing capital to grow next year and your own sense of whether this will be a big constraint for growth or things will start improving in FY09?

A: A couple of things will happen. Those who are stuck up halfway in their projects and had not finished raising equity capital will be in for some difficulty. But those who were announcing programmes that were going to start only a year or two years down the line may be looking at growth plans themselves and therefore may not be concerned.

Then there are companies that are able to calibrate their existing cash for the projects on hand. For example, one of the companies said that they expect the capex programme to benefit by 20% because of whatever has happened. They said that all the building blocks have gone down and 50-60% of every project is fabrication and those fabrication costs will benefit tremendously from what is happening in the world. So, you are going to see one category of companies getting affected. Others will do all right.

Q: Aside from capital rising, how concerned are these companies about maintaining the revenue growth cycle they have got growing until now because in the previous few quarters the hiccup actually showed up on the bottom line and now the fear is that sales growth might slow down quite considerably?

A: Yes; most companies feel terrible about the current quarter but they think that the imperative for growth will not be as much as it was last year. When costs are going up the only hiding place is growth. But as costs are coming down even if the topline isn’t growing they still will be able to manage bottomlines, so that’s an interesting insight we picked up. As far as sales growth is concerned, it’s something that we will have to wait for a few quarters and begin the journey again on that path.

Q: How are you characterizing on what we are seeing in the market right now, is this just a big bear market relief rally or is it more than that, what do you think?

A: Prices have become very attractive from the long term point of view. No serious selling can take place now and there is serious buying opportunity now. You can buy as much as you want in a calibrated manner but such large buying opportunity will start receding in a couple of months time.