Lots of liquidity waiting to flow into market: Ramesh Damani

There is a large amount of liquidity waiting to flow into the market, says Ramesh Damani, member, BSE.

Damani says there is a lot of complacency among players and there are no signs of froth in the market as yet.

Though he is bullish on companies betting on domestic consumption and on oil marketing and refining companies, while valuations in real estate stocks are too high. CNBC-TV18 shares with domain-b Damani's views.

What have you been making of this manic strides made by the markets?
I think it has been the par for the course. If you can look around the globe to start of with global perspective, in the first week of this year Vietnam was up of almost 14 per cent because they are opening up the economy, getting into the WTO.

Venezuela was down 19 per cent in a single day. Why? Because the government is going to nationalise some industries and frame some bad economic policies.

So it is given that we are fairly on stable ground in India compared to Vietnam or Venezuela.

The important thing is that yesterday we seem to have made a Bar Reversal on the chart - we went lower than the lows and closed higher than the highs, whch is a sign of a trading bottom at least.

Yesterday's low should then be considered in effect a stop-loss for the market.

Could the market show significantly new highs in the run-up to the Budget since these two months have been good but somehow the mood seems quite circumspect this time in the run-up to earnings and the Budget?
I think it will. I think typically we start of a bit slow in January. I remember if I recall correctly, early last year it was the same way. It started of slow then ended up very strongly and powered right through after the Budget.

So my sense is that the market's just two-day snap that proves that there is huge amount of liquidity waiting to flow in and any correction has been used by players as buying opportunity.

I think the fear in the market from my perspective is more one of complacency. I think there is a lot of complacency across the spectrum of players who believe the markets will only go up and that generally shakes people out.

So I think the last five-day correction was probably one of those shake-outs more than anything else.

Do you think that opportunity to deploy all that cash is going to come for the market by the time we are done with earnings and get into the Budget?
I think so, but it's not going to be easy. People like me who like to find value, like to find things very cheap, are not going to find the pickings as easy as they were say in 2003-04. But if you look across the mid cap universe, I think there are quite alluring ways of bargains there.

You just have to look at it differently, don't look necessarily for market leaders but look for small market caps, interesting businesses. Try and understand some theme. The theme that I have been expressing to my clients is a domestic consumption theme and that pans out in three ways.

In the Budget, the government is going to allocate more money to many more programmes — whether it is defence or agriculture. So you can benefit from that trend. For example, consumers are on an absolute buying spree. I think the Indian consumer is going to be the big story in next couple of years.

There will be companies that can benefit from that while the leadership in that sector is obvious. If you think below the radar, you might find some other bargains.

Globally though are you comfortable with the way things have panned out at the start of this year because of the interest rate bogie and commodities having quite a wild swing?
If you look at global indices, the Dow made a record high yesterday. As I told you, Vietnam is on a tear; China is on an unbelievable tear and just an interesting sideline as setting the agenda for our own Budget that comes in February end.

The Chinese government reduced corporate tax rates in China and the market went up 5 per cent that day. So if there is some talk on that, the finance minister, because of the buoyancy in tax collections, will actually reduce the corporate tax rates, which will augur well.

Whenever we have a high earnings season and markets with a good multiple, and you cut corporate tax rates, it will be extremely beneficial to the stock market.

So I think yes, the market has serious challenges and will have serious challenges but it has shown amazing amount of resilience in the last three years; there is no evidence to suggest that the resilience has deteriorated.

The first signs of a crack might come once the big IPOs like DLF start opening up. But markets look very stable. This bull market will end in a huge bang and not in a whimper.

The last few times the Sensex went to 14,000 and Nifty to 4,000, they struggled to clear it as some people are prone to booking profits and moving to cash out at these levels. Would you do that ahead of the Budget, or would you just let your positions ride?
I am a very long-term and patient investor and think this bull market has taught us one thing — that any one who had conviction and believed in the India story and held on to the stocks for whatever reason has made out and anyone who has tried to time the market, has actually been wiped out of the market and the gains have been very notional.

There is nothing sad in the bull market to get out with a 20-point gain in the stock when the stock ultimately goes by 5x, 10x or 15x. I am going to be patient; we have seen many huge corrections in May, October, May-2004, but as long as the basic story holds true — that India's GDP is growing at 9 per cent and that the Indian consumers are on a better footing, Indian businesses have new found confidence.

I think it is shortsighted to try and time this market and make a few bucks just trading in and out.

We are seeing a move in the financials after a long time — part of that domestic demand theme. How are you feeling about that pocket of the market?
I'm quite excited about it actually and I read a very inspiring story on the Chandler brothers in New Zealand; they started with $10 million in 1986 and have run up to $6 billion; the primary part of their money came-in as investments in Japan in the financial sector.

But in the last couple of years, they made huge investments in the Indian financial sector, the banking sector, with all the leading market names.

And having read through and trying to understand what they are doing, I think it makes a lot of sense. I think the Indian financial sector, if one looks at the floatation of say ICBC in China or the insurance company that floated two days back, a $120 million market cap, this sector is right for picking.

I think if this bull market continues and if the Indian consumers continue to spend, I think this sector will have strong growth ahead. We are well invested in that sector.

The sector that ended with a bang and started 2007 with a bit of a whimper was with some real estate stocks. Do you think there is still appetite for not just new issues like DLF but some of the listed entities as well?
To set the record straight, I missed the entire bull run in the realty stocks and so I am not the guy to talk about it too much. But having said that, the valuations seem extremely frothy to me; so I have not been comfortable recommending any of these stocks.

I think the problem will occur not necessarily in the built-up land area where prices will fluctuate a little bit, but in the land-bank type of schemes, where promoters are passing off land-banks at P / Es on extremely high leverage terms. So the part of the real estate sector that is leveraged the most will have the sharpest fall out whenever that takes place.