Feb 15, 2013 12:41 PM IST | Source: CNBC-TV18

Midcap correction healthy; bet on Fortis: Ajay Srivastava

Ajay Srivastava, CEO of Dimensions Consulting believes correction in the midcap space was healthy and stocks are getting to attractive levels at the moment.

Indian equity benchmarks have not exactly strong over the past few days and Ajay Srivastava, CEO of Dimensions Consulting believes correction in the midcap space was healthy and stocks are getting to attractive levels at the moment. He prefers midcaps like Tata Global post correction along with stocks of United Breweries and Havells.

"On the investment platform things like MCX, Financial Technologies, Tata Global Beverages are now coming to levels where you want to consider entering them irrespective of what happens to the market. You need to start building your portfolio," he explained.

Besides, Srivastava expects index stocks to outperform in 2013. But, he feels investors must be nimble in trading midcaps and book profits at regular intervals.  He further added that foreign investors are keen to accumulate blue chips on every decline.

Srivastava recommends a buy on Hindalco at Rs 110 per share with a target of Rs 130 per share. Jaiprakash Associates also remains a trading bet with a target of Rs 90 to Rs 100 per share, he said. According to him, Fortis Healthcare too is an interesting buy at current levels. However, he is of the opinion that infra counters like GMR and GVK Power must be avoided at the moment.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Midcaps have got a right hammering since we last spoke. Are you beginning to feel bit more skeptical about the market?

A: No, we are in fact feeling a lot more comfortable now because the run up in the midcap was very uncomfortable, it didn’t have fundamentals behind it. It was just pure domestic money trying to enter the market at a late stage of a rally. We are getting a lot more comfortable now that the pricing has corrected to the right levels and may correct a little more.

It is like a healthy balance in the market. Plus, the biggest point is that now you are getting shares to the point where if you get another 10-20 percent, you would want to pick up those shares. I am not saying midcaps, I am talking of the good quality frontline stocks. They are correcting, even in the midcap space some very good names are correcting.

Let us not talk of what I call the trash basket. Suzlon Energy is one of them. That is called a trash basket but on the investment platform things like MCX, Financial Technologies, Tata Global Beverages are now coming to levels where you want to consider entering them irrespective of what happens to the market. You need to start building your portfolio.

Q: What do you make of this narrowness in the market? Everyday 8 to 10 high quality stocks keep the index afloat but, the rest of the market is crumbling below it.

A: The point here is very simple. The market has got two segments of investor population and two dynamics. The big dynamics deals with the bigger players which are the index stocks. They will still give the best returns over the next 12 months and the moment there is a correction, buying comes back, like we saw in HUL where buying interest renewed once it saw a big correction.

The IT stocks haven't come down from their recent highs. The HDFC twins are close to their historic highs and Mahindra & Mahindra (M&M) is at a historic high. So you are not seeing correction in those stocks and there is a lot of money waiting to enter those stocks as well. The moment you see correction, people come into the stocks.

The other is the non-index stocks. The situation there is that you are going to really cherry pick. You can say all are bad but, I don't think that is true and not everything is bad. Some are good like MCX, Financial Technologies, Tata Global Beverages, Havells India and United Breweries. These are good stocks there.

What has happened is that people are taking big trading risks on an equity investment platform. Suzlon Energy, IVRCL are stocks where you need to get in and get out. If you held up on your position, you will end up making losses and that is a given in those stocks because they were not quality stocks.
However, I still say that till Foreign Institutional Investor (FII) is backing this country and the government is all out to welcome them, do not exit. In fact, the time to rebuild keeps coming and the market gives you opportunity to enter every time. That is the beauty of this market.

People who get left out need to enter, you don't feel bad about entering the mainline. Let us say HDFC Bank, it may go down by another Rs 30 but, over a year it will give you 25 percent returns. So be careful, use this correction. I am saying don’t get despondent but use the correction to rejig your portfolio and move into stocks you want to be there with.


Q: How would you approach some of the stocks from the large cap basket inside the Nifty which disappointed with results like Tata Motors, Tata Steel or even State Bank of India (SBI)?

A: All the three stocks in our portfolio are a no go for three reasons. In case of SBI we have been very wary of the performance and we still don't understand the quarterly variation in results. The chairman is saying that the results will be very good for the next quarter. It is a statement but we are not going to bank on it.

So national banks as a block, SBI particularly at this point of time, I don't think is a zone where you want to invest money. The reason being that if you want to allocate money to banking sector there may be far better candidates to allocate money than SBI at this point of time.

For Tata Motors, I don’t think their domestic situation is going to improve in a jiffy. Their domestic vehicle portfolio is lagging, truck sales are not going to go up in the next quarter or so. So I would tend to believe that it may be touching lows but the time to buy will come. The time is not right now.

Tata Steel is in a zone where you may buy it for value at this point in time, but the return could be very marginal. I don't think there is a serious downside but the returns could be marginal.

Q: What about high beta names in the index which have disappointed with earnings, something like Jaiprakash Associates or a DLF?

A: JP Associates is a trading stock and that is the beauty of the stock. It gives you opportunities, goes back to Rs 65-70, goes back to Rs 80-90. So it gives you a Rs 20 trading range in every three months. You have to be careful that when you enter at Rs 60-70 which is where it is right now, you have to wait for a while and it will give Rs 5 more if you get in but, you get out by Rs 90-95.

It is a good story but I am not clear about the financials. We have analysed the balance sheet, we cannot do a projection very clearly. There are lots of variable elements in that, lots of investment attached to that. JP Associates is a wonderful stock which will keep giving you money every time you enter but, exit at Rs 90-100. That’s the point. So it is an excellent stock for a trading perspective.

Let us now come to DLF. High beta names in Sensex are now very few, JP was one of them but barring JP, I don’t think any of the others can qualify. Maybe Hindalco Industries would qualify because it goes between Rs 110-130. So it is running at the lows again. It is an interesting buy at Rs 110-108 and you exit at Rs 120-130.

These are good fundamental stocks but, they will give you value and they will keep coming back. So trade on them rather than investing on them. There is an investment portfolio in Sensex and there is also a trading portfolio. These are trading portfolio stocks.

Q: For the entire year, do you think it will still be a trading market, the point that you are making that you will get those swings of 10 to 12 percent but, you will probably not make significant headway during the course of the year?

A: Yes what you are saying is correct. This is going to be a trading market and one of the reasons for that is the sheer uncertainty of having a single legged horse running this market and that is FII inflows. You have to be very careful that the day the tap closes or there is a reversal for whatever reason it may be, it can just be pure fatigue. For example, you will have major trouble in this market because there are no buyers. At every opportunity people are selling.

Whatever we have sold out, Domestic Institutional Investors (DIIs) have sold out. So if that inflow stops or is slowed down, we have got a fair amount of money this year and still the market is where it is. We are saying watch that index, watch that development. If that slows down, you need to be alert to get out. That is why you need to keep booking profits because you will never know when the FII turns red inflows and then you will be in trouble.

It is going to be a trading market and you have to be careful. You have to be light on your portfolios and that is another point. You cannot be 100 percent heavy and leverage on portfolios. This is the time to be light, nimble because the fundamental story is not strong and that is the point. The fundamental story is giving value only to 20 to 40 big players in the market. The rest are going to suffer in a sub 5 percent growth environment. So be alert, be nimble and be a trader in this environment.


Q: Any other stocks where you think value has arrived or is arriving soon?

A: I mentioned United Breweries and United Spirits. Post Kingfisher Airlines (KFA) debacle everything is over, the airline is dead, the bankers can recover what they want and we all know the exact securities that can come and therefore, these companies to a large extent will remain out of the ambit of the creditors.

So you now have come to the reflection point that you should be investing in United Breweries and United Spirits because these companies are going to do extremely well in the next three years. They are giving you opportunities like Rs 1800 on United Spirits. If it corrects or even at here, start accumulating. Rs 600 on United Breweries is a definite buy because eventually, that is the point.

I don’t know how the creditor pans out. Eventually, may be Heineken buys out United Breweries where the share price buy out will be closer to Rs 1500 plus. If you look at the Singapore acquisition of Heineken which has just been done, you are talking of serious values in both companies on a control premium and a full exit of Mallya if it happens and if the creditors go the whole hog. Even if they don’t, these are good strong companies. These twins are a good buy as you start accumulating.

Q: What do you do with infrastructure? Are you buying anything because in the last 10 days, the same companies have again disappointed, the likes of Voltas, Punj Lloyd, Crompton Greaves have all come in with howlers. Stocks like GMR Infrastructure, IVRCL haven’t done much better, any contrarian calls there?

A: No not at all. You have to stay out of them. Again things like GMR, GVK Power, IVRCL are pure trading calls. I saw that GVK and GMR have gone down by 40 percent so they come back to the trading range. If GVK comes at Rs 8-9 you go buy it for a trading up to about Rs 14. These are healthy returns, 30 to 40 percent returns. These are high risk stocks but these are going to give you opportunities.

They are not investment quality at this time, they are not qualified to be in a portfolio for long-term, but they qualify for the short-term and both the twins will give you a fillip. IVRCL is a shaky candidate but GVK, GMR definitely are good candidates to keep looking at and watching. Also Fortis Healthcare is back to Rs 100. It is an interesting buy around this price.

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