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In an interview with ET Now, Nirmal Jain, Chairman, IIFL, shares his views on stock markets, rupee depreciation and a range of stocks. Excerpts:
ET Now: There is market talk that some of your key employees who run your institutional business are on their way out.
Nirmal Jain : This is a rumour I have denied six times on your channel alone in the last three years, and I do not know how people do not get tired. There are some petty operators who are desperate for whatever reasons and they keep spreading these rumours. They are absolutely baseless and false and hardly deserve your channel's time because these rumours keep coming every month or every couple of months.
ET Now: But there is no smoke without fire. Why is the rumour not dying down?
Nirmal Jain : But it has been going on for three years now. So I do not know how long the fire and smoke story will sustain. We are seeing smoke for a long time and then there is no fire actually.
ET Now: So let me be specific here. Nemkumar and Aniruddha Dange, both key to the institutional business. Are you confirming to us that they are not going?
Nirmal Jain : Yes, both are there very much intact and hale and hearty, and doing their job on a normal course.
ET Now: You have shut down your Singapore operation business.
Nirmal Jain : That is right.
ET Now: Are you done with your cost cutting?
Nirmal Jain : The Singapore operations were completely different. In fact Prabodh, who was handling Singapore, will now move back to India and strengthen our team here. We have been running the Singapore operations for the last two years and we realise that it can take much longer to break even. So we have suspended them for the time being and we are done with the cost cutting in Singapore.
ET Now: Do you think this is nervousness ahead of the final notification on GAAR which is coming up on May 7 and, perhaps, that the market in anticipation of what may come is sort of easing out?
Nirmal Jain : Crude oil prices which have again started moving up are the biggest problem in the market. More importantly, the market's health will be more reflected in the currency because the rupee has already crossed 53 and our current account deficit is almost at an all time high. The problem is that there is a gap in import and export and our imports are by and large inelastic and that gap is met by invisibles and capital.
So that is not sustainable and that is what is making FIIs worry more because if you bring in dollars today and as the rupee depreciates, when you want to take it back, then your rupee returns are significantly reduced by the rupee's depreciation. So currency has to stabilise. That is one important factor which is impacting FII sentiment at this point in time but besides that of course there are GAAR and the global impact. There is a lot of uncertainty in the global markets. So if you look at the Asian or emerging markets, they have not been very stable.
ET Now: So what is the worst case scenario that we could stare at because some analysts are also talking about levels of 55 with the dollar in the near term considering the RBI has pretty much run out of tools to control liquidity as well as the currency situation?
Nirmal Jain : Yes, 55 is quite in sight. In fact, 55 seems not too far but if you look at one year, even 58 or 60 is a level which is not impossible to think of. There is a huge structural problem in terms of our balance of payments. You may have a burst of flows from NRIs the way it happened 2-3 months ago when deposit rates or interest rates were increased, but those capital or NRI inflows cannot address our trade or current account deficit.
The government needs to really take some significant measures here and curb imports on the one hand and boost exports on the other. So from this perspective, the market is worried but the positive aspect is that export-oriented companies or companies that earn in dollars will tend to benefit from this.
ET Now: But what is the worst case scenario that the market could stare at after a breach of 5,100 today?
Nirmal Jain : The market can look at 4,950 in Nifty... that scenario cannot be ruled out.
ET Now: There is an old maxim in the market which is good news and good bargains do not come together for investors who are sitting on the sidelines, who have not participated in this calendar year. Should they use every decline to their advantage to load stocks?
Nirmal Jain : I have been talking to you in my earlier interviews that in a market like this, good news and good bargains do not come together and if you look at FMCG and pharma stocks, they look expensive. They do not look good bargains on PE multiples. In fact, they have been safer investments and safer portfolio choices and they also give us superior returns. One may build a portfolio in the IT sector and in very select companies. In a market like this, this is a safer thing to do.
ET Now: I remember this conversation we had on the same forum exactly a year ago and that time you had recommended our viewers to buy two stocks -- ITC and Bajaj Auto. My compliments, both stocks have done reasonably well. What are your top ideas for FY13 now?
Nirmal Jain : I would say may be you can continue with ITC but you can add Wipro instead of Bajaj Auto because the auto sector will not be as good as we have seen in the last couple of years. So one can shift from auto to IT and pharma. Stocks like Lupin or ITC continue to be good and we can look at Wipro or HCL.
ET Now: Why Wipro and not TCS? If I look at the guidance from Wipro, the management commentary was not all that colourful, but TCS has indicated and acknowledged that it is business as usual for them and they are likely to grow at a 10% plus rate which is above the NASSCOM guidance?
Nirmal Jain : In terms of valuations, Wipro is a little more attractive as compared to TCS. TCS is, if I am not mistaken, already a $45-$50 billion company. So TCS is a good portfolio stock, there is no doubt about it. But relative valuations at this point, what I heard from discussing with our analyst, Wipro is more attractive at this point of time. So I do not know the precise terms of PE multiples and the guidance, but that is what our researchers have been recommending.
ET Now: What about banks, considering we have until now seen a decent amount of runup but clearly NPA concern still looms large. And given the rate scenario, the RBI does not have enough headroom for a further easing.
Nirmal Jain : One should be cautious on banks, particularly public sector banks, because as you said although there has been a 50 bps cut we are not out of the woods in terms of inflation and in terms of other macro headwinds.
So I would say that if you have a large portfolio and have to have some exposure to banks, then stick to private sector banks. For public sector banks, one has to be very cautious and very choosy because NPA concerns still loom large. In fact one has to wait for the March quarter results as well as the next one or two quarters before you take a plunge in the sector. Let inflation, interest rates and rupee stabilise before we get into this.
ET Now: This may sound like a rather simple personal finance question. If you have to advise the retail viewer who has capital of about Rs 5 lakh and wants to decide between an asset class and if the options are 10% fixed maturity products versus 15% in equities which are not risk free, what would you advise for the next year?
Nirmal Jain : I would say that split your portfolio 50-50 at this point in time. Put 50% in FMP or fixed income instruments and another 50% in equity through a good mutual fund if your portfolio is just about Rs 5 lakh.
ET Now: Before we wrap the discussion, I am archiving a statement that there is no churn at the top when it comes to your institutional business?
Nirmal Jain : Yes, absolutely and you should highlight that the chairman of the company has categorically denied and said these rumours are rubbish and motivated.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In an interview with ET Now, Nirmal Jain, Chairman, IIFL, shares his views on stock markets, rupee depreciation and a range of stocks. Excerpts:
ET Now: There is market talk that some of your key employees who run your institutional business are on their way out.
Nirmal Jain : This is a rumour I have denied six times on your channel alone in the last three years, and I do not know how people do not get tired. There are some petty operators who are desperate for whatever reasons and they keep spreading these rumours. They are absolutely baseless and false and hardly deserve your channel's time because these rumours keep coming every month or every couple of months.
ET Now: But there is no smoke without fire. Why is the rumour not dying down?
Nirmal Jain : But it has been going on for three years now. So I do not know how long the fire and smoke story will sustain. We are seeing smoke for a long time and then there is no fire actually.
ET Now: So let me be specific here. Nemkumar and Aniruddha Dange, both key to the institutional business. Are you confirming to us that they are not going?
Nirmal Jain : Yes, both are there very much intact and hale and hearty, and doing their job on a normal course.
ET Now: You have shut down your Singapore operation business.
Nirmal Jain : That is right.
ET Now: Are you done with your cost cutting?
Nirmal Jain : The Singapore operations were completely different. In fact Prabodh, who was handling Singapore, will now move back to India and strengthen our team here. We have been running the Singapore operations for the last two years and we realise that it can take much longer to break even. So we have suspended them for the time being and we are done with the cost cutting in Singapore.
ET Now: Do you think this is nervousness ahead of the final notification on GAAR which is coming up on May 7 and, perhaps, that the market in anticipation of what may come is sort of easing out?
Nirmal Jain : Crude oil prices which have again started moving up are the biggest problem in the market. More importantly, the market's health will be more reflected in the currency because the rupee has already crossed 53 and our current account deficit is almost at an all time high. The problem is that there is a gap in import and export and our imports are by and large inelastic and that gap is met by invisibles and capital.
So that is not sustainable and that is what is making FIIs worry more because if you bring in dollars today and as the rupee depreciates, when you want to take it back, then your rupee returns are significantly reduced by the rupee's depreciation. So currency has to stabilise. That is one important factor which is impacting FII sentiment at this point in time but besides that of course there are GAAR and the global impact. There is a lot of uncertainty in the global markets. So if you look at the Asian or emerging markets, they have not been very stable.
ET Now: So what is the worst case scenario that we could stare at because some analysts are also talking about levels of 55 with the dollar in the near term considering the RBI has pretty much run out of tools to control liquidity as well as the currency situation?
Nirmal Jain : Yes, 55 is quite in sight. In fact, 55 seems not too far but if you look at one year, even 58 or 60 is a level which is not impossible to think of. There is a huge structural problem in terms of our balance of payments. You may have a burst of flows from NRIs the way it happened 2-3 months ago when deposit rates or interest rates were increased, but those capital or NRI inflows cannot address our trade or current account deficit.
The government needs to really take some significant measures here and curb imports on the one hand and boost exports on the other. So from this perspective, the market is worried but the positive aspect is that export-oriented companies or companies that earn in dollars will tend to benefit from this.
ET Now: But what is the worst case scenario that the market could stare at after a breach of 5,100 today?
Nirmal Jain : The market can look at 4,950 in Nifty... that scenario cannot be ruled out.
ET Now: There is an old maxim in the market which is good news and good bargains do not come together for investors who are sitting on the sidelines, who have not participated in this calendar year. Should they use every decline to their advantage to load stocks?
Nirmal Jain : I have been talking to you in my earlier interviews that in a market like this, good news and good bargains do not come together and if you look at FMCG and pharma stocks, they look expensive. They do not look good bargains on PE multiples. In fact, they have been safer investments and safer portfolio choices and they also give us superior returns. One may build a portfolio in the IT sector and in very select companies. In a market like this, this is a safer thing to do.
ET Now: I remember this conversation we had on the same forum exactly a year ago and that time you had recommended our viewers to buy two stocks -- ITC and Bajaj Auto. My compliments, both stocks have done reasonably well. What are your top ideas for FY13 now?
Nirmal Jain : I would say may be you can continue with ITC but you can add Wipro instead of Bajaj Auto because the auto sector will not be as good as we have seen in the last couple of years. So one can shift from auto to IT and pharma. Stocks like Lupin or ITC continue to be good and we can look at Wipro or HCL.
ET Now: Why Wipro and not TCS? If I look at the guidance from Wipro, the management commentary was not all that colourful, but TCS has indicated and acknowledged that it is business as usual for them and they are likely to grow at a 10% plus rate which is above the NASSCOM guidance?
Nirmal Jain : In terms of valuations, Wipro is a little more attractive as compared to TCS. TCS is, if I am not mistaken, already a $45-$50 billion company. So TCS is a good portfolio stock, there is no doubt about it. But relative valuations at this point, what I heard from discussing with our analyst, Wipro is more attractive at this point of time. So I do not know the precise terms of PE multiples and the guidance, but that is what our researchers have been recommending.
ET Now: What about banks, considering we have until now seen a decent amount of runup but clearly NPA concern still looms large. And given the rate scenario, the RBI does not have enough headroom for a further easing.
Nirmal Jain : One should be cautious on banks, particularly public sector banks, because as you said although there has been a 50 bps cut we are not out of the woods in terms of inflation and in terms of other macro headwinds.
So I would say that if you have a large portfolio and have to have some exposure to banks, then stick to private sector banks. For public sector banks, one has to be very cautious and very choosy because NPA concerns still loom large. In fact one has to wait for the March quarter results as well as the next one or two quarters before you take a plunge in the sector. Let inflation, interest rates and rupee stabilise before we get into this.
ET Now: This may sound like a rather simple personal finance question. If you have to advise the retail viewer who has capital of about Rs 5 lakh and wants to decide between an asset class and if the options are 10% fixed maturity products versus 15% in equities which are not risk free, what would you advise for the next year?
Nirmal Jain : I would say that split your portfolio 50-50 at this point in time. Put 50% in FMP or fixed income instruments and another 50% in equity through a good mutual fund if your portfolio is just about Rs 5 lakh.
ET Now: Before we wrap the discussion, I am archiving a statement that there is no churn at the top when it comes to your institutional business?
Nirmal Jain : Yes, absolutely and you should highlight that the chairman of the company has categorically denied and said these rumours are rubbish and motivated.
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