Arvind Sanger, Managing Partner, Geosphere Capital Management, slams Securities and Exchange Board of India (Sebi), for barring foreign fund from being controlled by a persons of Indian origin (PIO) or non-resident Indian (NRI).
"We are shocked that Sebi has come out with a circular a month ago and the Finance Ministry either forced it or blessed it. We are hopeful that Piyush Goyal has a much clearer understanding of issues in my opinion," he said.
Edited Excerpts: We of course in media make the state elections like big affairs but are they really big for the market? Do you think the market can change its course depending on the outcome of this election?
Unless, it is decisive one way or the other, if you get both parties with 90 plus or minus seats and you have a third party. How does it matter whether Congress get 100 or BJP get 100 and the other party get 90 and then the JD(S) is the kingmaker. I mean, it just seems like much ado about nothing.
I think the problems or the challenges for India are beyond, whether or not BJP is winning a decisive victory or not in the Karnataka election. Because, I do not think it is a particularly meaningful indicator. The Indian voter is smart enough that he or she does not vote for national elections the same way they vote for state elections. So in that sense, I think people are over playing this election as having meaningful effect.
Oil is almost $80, rupee is facing challenges and we saw magically the oil marketing companies after not increasing prices for almost three weeks, raised fuel prices yesterday.
So you have all of the elements of some of the things that frankly, we as investors worry about in terms of macro factors that are going to be providing some headwind at the same time as I guess the earnings recovery or the overall recovery for the Indian economy seems to be gathering pace.
However, my concern is government actions that can lead up to an election in the next one year and the oil marketing companies biting the bullet on the so-called decontrol fuel prices. The first indicator of things to come and there are other things that we worry about that and make us more concerned about the outlook for Indian markets than over emphasising what happens in the Karnataka results.
Won't a decisive win for the BJP seen as an endorsement and a slightly higher chance of this government coming back with the majority and alternatively, if it was a decisive win, by decisive, I mean if the Congress formed the government, would not the message be that the opposition has got the edge and may be able to galvanise a better support in the 2019 polls. So would you not say that one needs to take this result at least immediately in the short run seriously?
If there is a decisive result one way or the other, maybe that can be projected to 2019 election prognostication. But if you get one party slightly ahead and the other party slightly behind, anti-incumbency works against Congress or Congress is able to despite anti-incumbency hold on to a lead, but BJP in alliance with JD(S) forms a government, those are all indecisive outcomes, which really are more state level electioneering issues.
Decisive victories would probably give a little bit more confidence than a more muddled outcome, where one party or the other in a coalition forms the government. We also had a big cabinet rejig yesterday and now Piyush Goyal will be taking the interim charge of the finance ministry, how do you look at that from a market standpoint, of course he has a whole host of issues to deal with – inflation, crude, the rupee, etc. but in general do you think it is a positive for the market?
I think to some extent this trajectory was ailing and the decision-making was being somewhat rudderless in terms of bureaucrats making decisions without clear oversight. It certainly should be a positive. I will tell you an issue that is very near and dear to us, which we are shocked that Sebi has come out with a circular a month ago and the Finance Ministry either forced it or blessed it or whatever that hopefully Piyush Goyal who has a much clearer understanding of issues in my opinion. With his background as a chartered accountant and investment banker, Goyal will hopefully understand that there is a rule that they have come out, which basically says, if you are an Indian origin portfolio manager investing from overseas, you have to basically wind up your business by October 10. Because, we assume all Indian portfolio managers are crooks and you roundtrip money for Indian corrupt businessman and therefore you to be treated as second-class citizens, compared to non-Indian origin portfolio managers from overseas, which is the most ridiculous thing I have ever heard in any country, where it is disadvantaging people of its ethnic origin versus people of other ethnic origins, which is you know something that is completely flabbergasting.
You were a little worried about the Indian macros especially with crude going towards $80, but the Hindustan Unilever (HUL) results and the other consumer companies are indicating a robust rural demand. In fact in Hindustan Unilever’s case, the management pointed out even their higher packages normally say elitist consumption items have also done exceptionally well indicating growth on many segments. Doesn't that impress you that there is a groundswell of growth?
Absolutely. I think the only challenge is, remember these growth numbers are coming in the March quarter. What will higher fuel prices, which have really shot up in the last month, month and a half, April, May has been the big move in oil prices, what will this movement in oil prices do as those are passed on to consumers? Will there be some negative effect of that? I think the economy frankly after several bumps along the way, whether it was demonetisation or it was the GST implementation, was subdued for a long time and therefore there are suppressed demand factors that should be coming to the fore.
However, I don't want to underplay the effect of $80 oil and rupee steadily creeping towards the high 60s and towards 70 - those are going to be moderate headwinds and frankly, if the Indian government has to partly absorb the higher fuel prices by cutting excise duties, then it will be important to see government discipline so that they don't crowd off the private sector as things come back.
I am being very optimistic about the private sector, but whether it is self-goals by the Indian government which forces Indian origin portfolio managers to have to liquidate portfolios and take money out or it is other factors which the government does to hurt the market, those are negatives that we are not knocking off and those are things worth watching. Because, if the government makes decisions leading up with the election, which are populist but ultimately self-damaging, then that could create outflows of capital and create further pressure on the rupee.I think those are things that we have not assumed were things we had to worry about. So, we are very glad that earnings are recovering but we would like to see the government do stuff that shows understanding that the global macro environment is not as favorable with Fed interest rates rising and everything that is happening. The last thing, the government wants to do is turn money away or shun money coming from investors.