Price of oil is going to drive our markets: Pashupati Advani

If US and China sign a deal, then it is probably not as good for us as we would like it to be, Pashupati Advani 67324252 , pashupatiadvani@globalforay, tells ET Now. 67333350 67332456 Edited excerpts: Just like us you have also been dragged into the studios on the 1st day of 2019.We are one of the two countries in the world where the markets are open on January 1st. I think it is going to be a dull year till we get some kind of direction as to what is happening with the elections and I do not see that happening till about March. We will go up, we will go down, we will just float. There will obviously be stock specific movement in certain industries as they benefit but given that there is going to be some policy making, the bottom line is you have to see which stocks are going to benefit from any kind of policy that is going to come in between now and February. You do not think the US-China trade deal can fire up markets? It could but then I think we get shut out. If US and China sign a deal, then it is probably not as good for us as we would like. I do not believe that they are going to sign a deal in a hurry. The pressure will now start from the Chinese side, given that the US has got one hand tied behind its back with the government shutdown. This is the time when the Chinese will strike. They have been playing by lifting soya beans but it is only a big short-term game and I do not know how China is going to be able to react. You are saying that it is going to be an edgy start to 2019 but what about the decoupling that we have seen at least in the last six months from the US markets? We have been unmoved by what is happening across the globe. But, how long will that last? What if we now begin to fall in line with the rest of the globe? Would that be a possibility? You know the thing about us that makes us slightly different is that we are very much dependent on the oil price and this time when all the trauma is going on worldwide, we have been benefited incredibly because oil has gone from $75 a barrel to under $50. That has been a real selling point. Half the GST revenues are oil driven; half our imports is oil. Therefore this is very much a part of our life and we do not realise it, we talk about the price of gold but it is actually the price of oil that is going to drive our markets, according to me. We need to see if oil remains at this level which it looks like because of lowering of asset values. In that case, which are the companies that are going to benefit? Obviously things like logistics and transportation will benefit because they have got lower input costs. They are the ones to look at and that is where the opportunities are going to lie.What is your big bet for 2019?One has to be thematic. It is going to be a function of betting on trends. Oil prices could remain subdued. Iran oil is kind of going off balance sheet because China is buying directly and that is taking care of one pocket. But when you look at things like that, whether it is the logistics benefit, in theory autos benefit because people will be able to buy autos, the cost of running a car or a bike is going to be cheaper. Those are the things that one should look at and those are the industries that are going to benefit and then of course, peripherals like ancillaries and services around them those are the kind of companies that we should be looking at. Axis Bank has a new CEO who takes over today, we have already seen a run up in the stock in anticipation. Is there an opportunity again in Axis and ICICI? My experience of new CEOs is that the first three to six months is house cleaning period. A lot of the truth will come out. It may actually wait till April because of the financial year. It depends on how much it is. If it is a small amount, we will see it between now and March, if it is a large amount we will see it in April. But people feel that the most of it is going to over with Axis and the other thing that is very interesting is that as money gets released in the system it is going to be come to banks like Axis so if they are in a position with technology to be able to make sensible loans and the new loans will work I think that that is one of the things to be looked at. There is a lot more in the banking system than has come out and even though there is a lot of optimism flowing, I am not as optimistic as the general market in that space. Would that make you a little circumspect about corporate banks and the kind of recovery that we have seen in the last three months namely in ICICI Bank and Axis? Yes, because after the IL&FS crisis hit, we saw that they were all involved to some extent. But how many other companies are there that are struggling? The real challenge is that a lot of banks in PCA are midcap companies which are finding it difficult to get more working capital to grow and unless we kick-start that whole thing and open the floodgates it is not going to happen. RBI is doing some opening but they have not opened the floodgates totally, they are letting water through but they are still on a 10% water cut or a 20% water cut, we are not on full steam yet. But the other thing is that we are seeing capex starting so that is a good thing because people who are running good businesses are actually spending on capex and that is a great indicator of companies that feel they are doing well. So if you look at the capex spending, those companies should be looked at. They will have a dull one or two years while they put their new stuff together but then after that they will pick up and move to a new orbit.What about autos?The general trend worldwide is that autos are not going to move up. In India, Maruti has been totally counter cyclical to that because they seem to be selling. We are also at the point where a lot of people are migrating from two-wheelers to four-wheelers. So it is a differentiator for us. We have cars that start at Rs 2 lakh and go up to a couple of crores, or maybe even Rs 10 crore if you buy a Bugati, but most of the cars are available for between Rs 2-7 lakh. That is where the markets are and Maruti seems to be filling that gap really well and plugging away every Rs 50,000 as a new model and its variants. But although there has been a bit of a slowdown, just looking at the last three months data and last December sales which have just come in, is way off the mark? But you know what has happened. This is the problem with the NBFCs. They do not have money to lend and the people who are aspirational and buying autos want to buy it on EMIs and if the NBFCs are having to cut back on their funding or be strict about who they are going to give loans to, then that is the effect. We had this before once, I cannot remember exactly when, when there was almost like a zero auto lending and then people just did not buy cars, now whether it is for business or whether it is individuals they just stop buying them because I do not think too many people can go out and write a 10 lakh cheque but they are quite happy to pay Rs 20,000 a month to buy a Rs 10 lakh car.

from Economic Times http://bit.ly/2AosJra