Moneycontrol
Mar 04, 2013 09:37 PM IST | Source: CNBC-TV18

IT, pharma may do well; see bargains in midcaps: Dimensions

Ajay Srivastava, CEO, Dimensions Consulting is doubtful of India being able to achieve the projected 6.1 percent GDP growth in 2013-14. “Post Budget we need to factor in 4.5 percent at the tops for the GDP growth rate in the current year,” he said in an interview to CNBC-TV18.


Ajay Srivastava, CEO, Dimensions Consulting is doubtful of India being able to achieve the projected 6.1 percent GDP growth in 2013-14. "Post Budget we need to factor in 4.5 percent at the tops for the GDP growth rate in the current year," he said in an interview to CNBC-TV18.


Expectations were high going into the Budget, but post Budget given that the mainline stocks are under pressure it would be very difficult for the Nifty to breach 6100 in the short-term. 


Also Read: Optimistic India Budget jars with revenue reality


However, Srivastava sees trading opportunities in the midcap space. "Pricing is looking good for some stocks in the midcap space. We are reaching a zone of more comfort to buying," he added.


Sectorally, IT and pharma are likely to outperform other sectors in a weak market.


Below is the verbatim transcript of Ajay Srivastava's interview on CNBC-TV18


Q: Budget has come and gone, but the market has not gone up at all. It remains in a fairly weakfish trend. Do you expect to see more damage here?


A: Yes, the reason being that the Budget compounded the theory that there will be a big transfer of resources taking place from the private sector into the government sector which will use the money inefficiently. If you see the expenditure increase, the government has pegged it down but nothing tells us that reversal is happening. Then you saw the petrol price increase taking place just after the Budget. So everything tells us that this year there will be a big transfer of resources again taking place on the private sector. As it demand is weak and we saw the gross domestic product (GDP) numbers.


You saw the February series numbers of autos and many other industries are going to be much lower than what people thought. While we are having a demand which is going down in the system, the government is transferring more resources which will ultimately end up in the lower GDP, lower demand for products and therefore inventory rundowns for companies. So, it is not a happy scenario till you see government curbing the expenditure. It is not about subsidies. It is about the expenditure as well. Subsidies are like a fiscal support to the system. Government expenditure is like money out.


Q: Are you beginning to fret about growth? In the last few weeks, a lot of people have started questioning whether the earnings and growth recovery is on track after seeing last quarter earnings, seeing the macro GDP numbers. Do you think we should work with lower growth for FY13, something that needs to get factored into valuations?


A: 6.1 percent looks very unlikely. Internally, we need to factor in 4.5 percent at the tops for the GDP growth rate in the current year.


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Q: Do you think 6100 will be a top for the market for sometime now?


A: This market for the last eight months has only one leg, foreign institutional investor (FII) flows, for whatever reason it is they are still buying the Indian story. So if that one leg gets shaky, this market has a very difficult way to go up, forget what happens if they stop selling and the downside is unexpected. 6100 looks to be the top leg. Going into December, we were optimistic going into the Budget, but post Budget the short-term at least looks very difficult for the Nifty to crack and the reason being the mainline stocks are under threat right now.


The metal pack has gone absolutely to the dogs. The banking sector is wobbly at this point of time. Consumer sector is holding form, but not moving. The only sector moving is IT and a bit of pharma will move, but the pharma impact on index is very little. Can IT move the index? No. Can infrastructure change turnaround dramatically? We are hoping it does, because these are the two sectors which have got huge weightage and can move the index. Banking, I do not think is going to move very much to get the Nifty up alone on a standalone basis.


Nifty at 6100 looks very doubtful in the short-term. These are emerging trading opportunities. At least in the midcap space now that a lot of trading opportunities are there, pricing is looking good for some stocks and so you might want to enter there. Similarly, for mainline you are seeing value emerging in a manner of speaking 10-15 percent more cut down and you will see a significant value in some stocks. You are reaching a zone of more comfort to buying, but Nifty going to 6100 looks unlikely at this stage.


Q: Do you agree that the downside is no further than 5600 or do you think the downside could be more significant?


A: If downside triggers and there is only one trigger to make a major downside, the FII flows, then there is nothing called 5600 to hold us by. We saw the blue chips being butchered as anybody else because when the selloff happens it will be across-the-board selloff. Banking sector looks very vulnerable at this point of time for the reasons we all know that the allocation in the Budget is Rs 14,000 crore, is absolutely inadequate for the nationalised banks to recapitalise for the whole year. They will definitely see a major selloff, they have gone up and will see a selloff.


If the push comes to shove on pure fundamental, there is no reason why the market would stay at 5600 if the GDP numbers what we are expecting are to come around in the last quarter of the current year. The only trigger is FIIs. If there is a single sale or a big sale starts to take place, I do not think the index will hold 5600 unless they remain buyers, then we have a comfort that 5600 can hold. But if one of the big ones start to sell and mainline stocks boot, I do not think 5600 has any sanctity purely on fundamentals. I am not talking about trading call and fundamental basis.

Q: Many midcaps have corrected to levels where you would be comfortable buying again and the real carnage has happened in midcaps. Can you name two or three names which have corrected significantly where you are finding value now?


A: Jaiprakash Associates has corrected down to almost Rs 70, cracked to Rs 69, has come back all the way from Rs 100. It is in a nice trading range. It always gives you a good profit when you get in around this price. JP Associates is one stock where we have been looking at and is in a good trading range to get in. We were running long on that stock, we sold on the Budget day. It is time to look at getting long again for a short-term kick-off which should give away.


The second one is Lanco Infratech that has gone onto Rs 10-11. Nothing fundamental, I must clarify. It is a pure trading bet that it has come down quite substantially from Rs 15 odd, comes to about Rs 10 odd, unless it breaks, it should give a bounce of another 20-30 percent when the market turns around. So, these two stocks could give a good trading up more than a fundamental up as you go along.


Q: How would you look at these oil stocks now? Fuel prices are happening at regular intervals. Do you think you have seen enough to be convinced that the government is serious and you can own some of these oil stocks now?

A: It has been four months. We have been saying yes to the oil stocks. Even today, we agree that oil stocks should be bought into because the re-pricing is going to happen. It has not happened as fast as we thought, but the price is increasing regularly. So, these companies should look a lot better in a year's time. If you are building up a portfolio, you could easily look at 50-60 percent upside in this portfolio on just the three oil companies in a matter of a year or so. Considering market-to-book value ratio, they are undervalued for any global context. I do not think there is any major scope for a downside surprise.

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