Q: What do you feel about the markets and how do you think it is looking before the Budget?

A: Although I played bullish and I am normally bullish, I am a little uncomfortable with the pace of the market rally in the last seven-eight months and I think that we may be borrowing a little bit from the future with the pace of the rally.

I and my investors should be better off in the market if we got the same returns gradually and steadily over a number of months rather than every month thinking that this is it only to see a fall next month.

Of course, the bulls, and I am normally a bull, would say that the fact that we are so circumspect means that may be the markets will not correct after the Budget.

Q: What are you doing yourself then, have you started moving a lot of money to cash and wait to see the event or are you fully invested?

A: In our case, the fully invested is normally around 50-60% only because that is how we invest in this current fund.

So I have to think whether I should make it 40% or so and maybe near to the Budget, I would buy on few more puts and maybe increase the cost that I pay for insurance but I think I will have to do something like that, not because I think that the Budget will be bad but just that over a number of months, seven-eight months, literally every month the market is 5% or so a month and that a good Budget or bad Budget looks a bit high.

Q: Is the job of a fund manager slightly easier right now than earlier years because now we have a very active futures in options/F&O market as you said, in which you can buy some protection to guard against an event risk?

A: That is true but there is a cost to this and normally if I were to spend 2-3% of NAV then only would you be able to protect the whole fund at 3-4% away from the current levels.

So it is not just that the job is easier, there is a call and there is a cost to that. Actually the job of the fund manager appears easier because generally there has been a bull run and so everybody thinks that, it is because of their creation and not because we just happen to be in fortunate times, which is part of the story but we will spend some money on insurance and protect some part of the portfolio and we do not want that insurance to pay off because that would mean that the markets are falling but that is a bit for sleeping well in the night.

Q: What are the odds that we have a post-Budget slump, 10 out of 17 times, we have fallen post-Budget, in the month after the Budget, do you think it will be number 11?

A: If we ignore March, let us say that next three months, there will be some correction, which will take prices lower than what they are today.

Q: Significantly lower, you think?

A: I hope not and we are not ready for that, neither we wish for that and neither will we be ever ready for it because we, as I said, are bullish, I want to temper it a little bit for myself. There is no reason why it should be significantly lower, corporate results have been good, financial position, the government is good, foreign flows may not be very good but there is a lot of interest and I think they will buy any correction.

They will only stop buying corrections if after they buy one correction, the market again falls and the second correction may not be bought. But right now, the programming of the foreigners is that you buy a correction, even though it only takes you back to levels that you may have seen only three or four months before but just the psychological pleasure of buying a correction is still there and for ourselves also, last year for example the highest flows, absolute highest flows came at the end of May.

Q: What worries you about the set up right now? Do you think the correction when it comes will just be a factor of valuations and the lack of corrections for many months or do you think it will be a global event or a local event like inflation going up and it is already at 6.5% which will trigger that correction?

A: What trigger it gets, I do not know but when it happens, India will have a pretty steep correction because I am most uncomfortable with the sharp rally in stocks that nobody has heard of, that normally don’t even get fully subscribed and suddenly you find them going up. I think basically it is artificial and unfair and misleading and they are not just random traders.

So my feeling is that a number of stocks that go up have no basis and most probably when the markets fall, they will fall 80-90%, but I will not be shedding tears for any investors who have bought those stocks with open eyes.

Q: What are you more apprehensive about in terms of valuations? Did I hear you say that you are still comfortable with the largecap valuations but it is in the midcaps that valuations worry you?

A: I am most worried about the super high traded unknown names, obviously there are atleast 40-50, these trade in multiples of free-floats. In the large names actually if you are expecting a correction then you are safer off in the largecap names because the correction in midcap whether it has a lower P/E or not will be as savage than maybe without liquidity when it happens.

So today we still feel that in the largecaps, you choose the obvious longer-term themes and stay with them, maybe buy a new company here or there but broadly I am most nervous on which will trigger the fall with the high volume traded unknown stocks.

Q: What is your own weighting between midcaps and largecaps right now in the Helios portfolio?

A: If we consider as USD 500 million and above as largecap, then we will be on the long side around 75-80% above that because if you consider billion dollars as largecaps then maybe we are 60% or so, then we would have 140 companies like that.          

Q: How do you rate the new paper, which is hitting the market over the last couple of months because a primary market action has heated up considerably?

A: There have been two groups of companies hitting the IPO market those which barely get subscribed and those which gets subscribed 120 times. So mostly my feeling is that those which barely get subscribed have been giving much better performance and I would not touch them even if I knew before they went up that this is what will happen and the ones which gets heavily oversubscribed have also been recently disappointing and all in all the IPO experience has been very poor for the investors in the last four-five months.

One oil company Cairn is below par, so if you come out and if you consider that the money waited trade then many of the real estate companies are below par because if you get oversubscribed 120 times and if you go up 10% basically you lost money for everybody.

Q: What is your sense of the liquidity situation right now, January was very quiet, February we have seen quite a bit opening up. Do you think when the correction comes, there will be a lot of global money waiting to buy into it or they will skirt it for a bit?
 
A: No, I think first round, they will buy. The foreign investors and even the Indian investors are programmed to buy a correction now because in the last 3 years every correction buying has worked.

Let us say we consider a correction of 10% and after 10% some investors will put and after a month or two again is falls 8-10%, no body will buy the second correction.

Q: Do you think we will get off with 10% this time after no correction virtually for 8 months?

A: We don’t know that because this all depends on global factors which we don’t know about but when the market corrects 10%, some stocks in India will fall 50% and nobody will shed a tear for them.

Ah-ha...someone wants to join the Club 500 soon it seems!

Just kiddin'