Ramesh Damani, Member, BSE, said the Sensex could scale to 12,000-12,500. "However, it may remain in 8,500-9,000 range for another quarter on the downside. It is unlikely to go back to 21,000 in five years, and might take even longer."
He feels India is better placed than the rest of Asia, but it will suffer along with it. "The worst seems to have been priced in by the market. However, low consumer confidence, global contraction not priced in."
A new series called The Learning Curve is coming up on CNBC-TV18, where D-Street meets B-School. Here Ramesh Damani, Member, BSE, speaks to some of the brightest minds from Dalal Street and across business management schools. The series starts from January 10 on CNBC-TV18.
Here is a verbatim transcript of the exclusive interview with Ramesh Damani on CNBC-TV18. Also see the accompanying video.
Q: Was it more fun taking all your friends along or meeting the generation next of Indian business at B-Schools?
A: It’s always a privilege to do a show. What an awesome responsibility and privilege it is to take public airways and air our view The show is based on a very simple premise that Warren Buffet said, “Tell me who your heroes are and I will tell you how you turn out”. So, I am going to take the heroes of Dalal Street, the self-made men, the people who have been the visionaries, the oracles of Dalal Street, and meet the best and brightest of B-Schools as the future captains of industry. Napoleon Bonaparte once said, “The battle of Waterloo was won on the playing fields of Eton.” So, we want to go to the B-Schools and inspire the next generation of investment managers or proprietary traders in India, which is a very difficult time. You will find that most of them still want to get into investment banking, and equity research. We told them the pros and cons of this business and explained them a lot of things about volatility, and risk. It was a great experience and great fun for all of us.
Q: Good to hear that stock market faces still have superstar status when you went to all these B-Schools?
A: Absolutely. Though it would be waning. Even IITs, or Indian Institutes of Technology, are having hard time placing their people. This financial year is probably the worst that we have seen in 20-30 years and that too globally.
The market conditions have changed a bit but what we took were the superstars of the Dalal Street to meet as we all know the best and the brightest of B-Schools.
Q: Was patience one of the virtues that your guests talked about? How long did you sense and did you guest sense this entire process would last?
A: The Street is always divided on the opinion. There are people who think that the worst is in the price and there are people who think that the worst is still to come. I think the two players were talking about that.
This show has taped a bit before the market had a serious fall. So, I would not rely too much on that opinion. But even the current, contemporary opinion on the market is well divided between the bulls and the bears. The bulls saying the worst is in the price, even in this quarter result. That well maybe true. The bears were saying that bear markets with a generation of excesses don’t get expunged in a year. Inevitably, the market will trail at the bottom before a new bull market starts. So, the Street as always is divided.
Q: Are you getting a sense of how the year might shape up because here again there is split opinion, but many veer towards the fact that the first half is tough, the second half is better. Is that too pat in your mind?
A: Technically, the market seems okay. I think the stimulus packages that the various governments have announced ‑ its almost unprecedented amount of stimulus package ‑ has helped markets. In effect, you gave US banks billions of dollars of cheques with low interest rates which they can deploy very safety elsewhere.
Toyota for the first time declared loss and a production shut down in America. The key feature of 2009 will be that that American consumer will finally learn how to save. He has gone from negative savings rate to positive rate. So any stimulus package, if you give him a tax refund and he deposits that into his bank account, has enormous earnings for corporate profits and margins. While technically the market is okay, you could even make a case for Index to go back to 12,000-12,500 range.
Fundamentally, the story is still deteriorating. Business capitalism works on a sense of confidence, on a sense that someone wants to spend money, someone wants to build a bridge, or start a business. If we recall the when 9/11 happened in America, the first thing George Bush said to Americans was not its safe but to go spend. The US economy is the driver of global economy. My thinking is that because of this huge whack that consumers across the world particularly the US has taken, consumer spending is going to slowdown dramatically. That has enormous implications for the world.
India might be better off than a China or Taiwan or Hong Kong, but we are not an island unto ourselves. We will feel the impact of this global Tsunami.
Q: You yourself have been very circumspect through 2008 about the market and were in the bearish camp. Now, after seeing one year of this bear market pass through, where have we reached in this bear phase? How are you mapping the next 4-8 quarters?
A: I can only go by historical parallels and don’t really know. As we have all found out, timing the market is a mugs game that no one is good at. I said the dollar would have collapsed, in fact the dollar made a historical rally at this point. So, with that caveat in place, it seems to me that consumer confidence is going to be low. If you go back and study some of the great bear markets in the world, they need more than anything else time in order to heal. When we had such kind of wealth destruction, when individual stocks have gone down 95%, the four major financial institutions ‑ the iconic brands in America are basically burst ‑people generally don’t rush back to equities. So, we could see a situation where the economy somehow recovers, it goes at 4-5-6%, but the stock market doesn’t recover.
The bear market has time to play out. What we are witnessing is the market is fine right now. The speed too is exceptionally light in terms of outstanding positions. If you look at the screen, it clearly tells you not to be too bearish on the market. Clearly the market is looking at Q1 results smack in the face and Q3 results smack in the face and it is still not panicking. So, maybe the worst is discounted in the price. But a slow global contraction, a slow decline in consumer confidence, in my opinion is not priced into the market. I think bear market ends with anaemic volumes, end with people not wanting to get into markets, and ends with anaemic volatility. We haven’t seen that yet. So, before this process ends, we are going to see a very low volatility, volumes phase in the market.
Q: What do you think will be the two goal post of any kind of range this bear market might form before it gets out of the woods?
A: I think the highs to be seen are decisively around 12,500. I will sit down and relook my hypothesis that we are still in a bear market. If we decisively cross 12,000 and 12,500 and it looks like it is not going back, I think we have to revisit the hypothesis.
In regards to the bottom ‑ as bull markets know no tops and bear markets know no bottoms ‑ you can’t say that that 8,000 is sacrosanct. We would just have to see it as it plays along. You can see that in Japan, the second largest economy of the world, they have actually done something to make themselves proud by building global brands, global businesses. Here, 30 years later you are still at 8,000 from the peak of 40,000. I know Japan is an ageing demographic, but there is always an excuse to explain that. Like I have mentioned to you many times in my presentation, US was a growing economy at 3-4%, but from 1968-1982 the Dow remained in range between 600-1,000 despite the GDP growing at 3.5-4% in America that time.
So, just because markets inevitably remain overvalued for a period of time, they can remain undervalued also for a period of time. Between 1999 and 2003 the whole stocks remain undervalued for a period of time. So, the higher range seems to suggest 12,500-13,000 for a while. If it breaks 12,500, I would suggest we relook at our more bearish hypothesis. At the bottom, maybe you meander another quarter between 8,500-9,000-12,500.
Q: You have been a stock picker yourself and track many interesting midcap stories. How do you see that whole universe shaping up, when you talk about anemic volumes and interest, is it primarily for that universe?
A: Those are already having anemic volumes and lack of interest I think the ‘A’ group is still attracting good volumes and decent volatility, which is not typical in a bear market. Typical in bear market volumes even in those most liquid counters will tend to dry up completely. I think it has been exceptionally brutal for pickers of stock also in terms of- other than a small island called FMCG, where you can kind of protected your capital. I think it has been brutal across the board and the fact that the midcaps have fallen 90% and still not been able to rally in any significant measure on aggregate basis, suggests that this will be a very painful process, a lot of companies may not emerge out of this in the shape in which they are even today.
So, you want to make sure that you got the businesses right and they will survive for a period of five years looking in to it. What happened was that we had a super cycle in the equity markets, beginning 1982 when Paul Volcker cut inflation and Ronald Reagan became President of America, and those themes drove the bull market through a great American expansion, through the technology bubble, through the openings of the Brazil, Russia, India, and China (BRIC) countries, through the rise of China.
We are coming perhaps and I use that in quotes “to an end of a supercyle in equity markets”. So, maybe the living won’t be so easy, maybe the lessons that we have learned that we buy the dips because for a quarter of century they have worked, won’t work because history is full of example of market rallying. The markets can be at 50%, the Dow doubled in 1932 from its lows and still went on after that. So, the question that we need to ask ourselves is when do we expect 21,000 back on the Sensex. To me that is the most meaningful question. Yes, there will be periods when the markets will rally and there is enormous opportunity to make money, even in the bearish market.
But to ask a simple question of when it will go back to 21,000 and I asked this on a poll from investment professionals and I got answers ranging from 2-5 years and if you were to ask me, I will say to get back to 21,000 will be a longer period than five years. I don’t think we will get back to 21,000 in five years.
