NDTV: Nobody seems to be respecting the conventional laws of wisdom in these volatile markets? Prakash: I think there is some respect. Due to severe volatility the conventional rules of a bear market are not working, so you have to manage risks more than you normally would. If you have $50 million of cash then you would buy $5-10 million now and keep some amount as dry powder. We are buying but in a staggered way. But surely no one knows how bad it could get. NDTV: What will be the time when we see the bottom? Prakash: I think we are somewhere near the bottom. Nifty is likely to bottom out in the medium term at 2200-2300 levels. In the coming period the markets will become flat and move in narrow trading range. And people are looking out at stability. I think markets are going to remain at subdued level for some time because of investors’ totally crushed risk appetite. The issue which is typical near a bottom is that you don’t know where the buying will come from. In India most of the FIIs are facing redemption pressures and though mutual funds have cash but they too are expecting redemptions. Those with long term capital are only insurance companies but even ULIPs are showing slowdown in growth. In short term I don’t see $4-5 billion of new capital to boost the market but possibilities are always there. NDTV: So when will the selling stop? Prakash: There is a general feeling while talking to prime brokers that at least 20-30 per cent of funds may just shut down either because of a drawdown or economics of business don’t make sense or alternatively you are seeing panic deleveraging. It is unlikely that markets will change dramatically from now on. But I would say you will probably have one more fall this December and then it should hopefully stabilise. NDTV: When are we going to see recovery process next year? Prakash: It won’t be in the beginning of 2009 but it would probably be in the middle of 2009. Remember India is gearing up for another round of elections obviously before May and we don’t know who will form the next government. I think we should start seeing better times in the second half of next year, but I don’t expect any dramatic reversal before that. NDTV: What is your view on the rumors of sovereign wealth funds in India? Prakash: I don’t think it is going to work in the Indian context. There are many questions that need to be answered like accountability and types of stock purchase. I think India must strengthen its domestic institutions like insurance firms and mutual funds. It is not a good idea for the government to come in and buy stocks. NDTV: Don’t you think a market like India deserves better respect in equities? Prakash: Our markets peaked in December so in January there was a lot of froth in hindsight over valuations and excesses in the market which is now coming out. Even today we not the cheapest market in the world. Also going back to January we were probably the most expensive emerging market, so a correction was expected. Further, India tends to swung more by FII flows.
I don’t think markets are purely driven by fundamentals and valuations but technical factors have come into play. Also the country’s macro vulnerability has been exposed dramatically in this environment. India is probably the only large market which has twin deficits and also its flexibility to counteract in an economic slowdown is far lower than other economies. So investors are spooked by the fact that it is a country which don’t have macros as we thought. NDTV: What do you make of Sebi asking FIIs not to take fresh overseas lending and borrowing positions? Prakash: I think it is okay because futures and options (F&O) market would still be open. I don’t see anything negative about that. NDTV: What’s the pressure from your investors in midst of current slowdown? Prakash: We have got locked up capital and we are blessed that we don’t have that problem right now. Otherwise for investors it is very difficult to raise new money in India because they are spooked by falling markets, economic slowdown and macro vulnerability. But the big issue is after this carnage is over how much money will come back into emerging markets. Investors may say that they can get 11-12 per cent return in US equities so why should they come to emerging markets. But there might be some investors who may say that emerging markets is a good entry point. So it is difficult to tell which way investors turn to. NDTV: So what kind of stocks or sectors are you buying? Prakash: We are buying largely companies that we know well. We are buying medium to large scale companies with strong balance sheet characteristics and very strong free cash generation. We are not buying highly leveraged companies and firms that need capital to grow. We are not necessarily buying FMCG companies but we are buying companies in non-defensive sector with those type of characteristics. We are buying TCS and Infosys. We are not focusing on top line but targeting on capital efficiency and fundamental quality of business.