Beleaguered state-owned banks could surprise on the upside in the April-June quarter, feels Ajay Srivastava, chief executive officer, Dimensions Consulting. In an interview with CNBC-TV18, he says buying the banking index (Bank Nifty) makes more sense than buying individual bank stocks. Punjab National Bank is one PSU banks Srivastava is bullish on.
He says he will buy Infosys ahead of the first quarter (April-June)earnings because the stock has been beaten down below its intrinsic value. However, he is not certain if he would want to keep it as a long term holding in his portfolio.
Metals and oil marketing are the other two segments that Srivastava is bullish on. He says market expectations from the government have reduced considerably because of the ongoing political uncertainty.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: We have had a fairly sharp pullback for ourselves. Do you get the sense that there is more for the market in this current momentum or is the rally done?
A: I don’t think rally is done. One can actually throw a dart today and most likely will come up with a winner. At least the price will go up by the end of the day. So, I think the rally is there for some time at least because it’s a cumulative impact. There is a lot of negativity and of course the biggest positive macro points, government fiscal deficit getting under control.
So, lot of positives coming together at this point of time. Also the fact that the market was under owned in the large measures, there were lots of shorts, lots of people sitting on the sidelines. So, in the cumulative impact, I would say is bordering on euphoria rather than a rally.
Q: What is your own observation of the sharp crack in gold and crude? The observation seems to be that tactically it generally points to a correction or a come off on other riskier assets as well when things fall this sharply in the commodity universe.
A: Anecdotally and historically one is right. All the time the gold has cracked it has followed up with severe issues in the financial market. However, having said that the background has changed little bit to the fact that the central governments are more in control of the situation, they are more willing to intervene in the market compared to 2008 and 2009 at the point gold cracked.
So, one would tend to believe if there is a big issue coming in the market whether from Europe or America the central banks would intervene that is number one. Number two, the financial markets have cracked, the physical markets are not cracking and that is the interesting situation out there. I do not know if many people know the fact that the Minerals and Metals Trading Corporation (MMTC) run out of gold in Delhi.
People were buying physical gold. The prices never went down. The banks were still setting at something like Rs 30,000 for a 10 gram coin. So, it is a dichotomy that financial markets are going in a different way, but the physical market is telling a story that the physical demand is just not getting satiated.
Q: Last week, what also aided sentiment was a good set of earnings that came in from the private sector banks. Would you put any incremental money into this space and if yes, which are the stocks that you would look at?
A: The first point is that you would tend to start to look at buying the index again because that has done the best compared to the individual stocks. It’s a given, the fact that private sector banks would do well, but we are banking that the March quarter results of nationalised bank would be lot better than most people expected.
So yes, you could run up a list of nationalised banks and say that the Union Bank, Bank of India, PNB, etc would do a better job compared to this. Safer would be to buy the index because that gives a flavour of both the markets with a very heavy weightage of private sector banks.
So, should one-two banks kind of give a bad result, you are safe on the count. We are saying rather than allocating money to the banking stocks individually, Bank Nifty is a better place to be than just individual banks. The only one we have individual positions apart from Bank Nifty is ICICI Bank and it is in a longer term position of ours.
Q: The other trigger perhaps could be that the Budget session recommences today and there are lots of important bills that are expected to be taken up. What is your expectation and secondly, what could move the needle of the market if it comes through?
A: Zero expectation. I don’t think market is looking at the political part of the deal to come give us anything great to come out. Even on food security count, it is largely negative in a manner of speaking that how much is the pressure on the fiscal in the next 12-18 months before the election comes in.
So, I don’t think the political class can at this point of time give anything positive. I think global markets can give us more positives. One already knows the agenda of the Budget session today, the 2G report and the issues with the women and the rape issue, etc. I don’t think economic agenda is on top of anybody’s mind, no matter what they say today.
One or two reform bills are not going to make a summer for us. Let the government stay away. We are doing fine at this point of time. I don’t think government can do much to get the demand going and that’s what people are ignoring.
The demand is crumbling in the market. People who are euphoric should understand that the next quarter results. Maybe even after that things are going to be absolutely horrible. Local demand has collapsed almost to a level we have not seen for a far. So, one side euphoria, one side demand, but I don’t think government legislative agenda can give a leg up to the demand in the short term.
Q: If your call is that things are pointing to euphoria, something we haven’t seen all of this year, where do you think it could likely take the market? This time, could momentum push it much higher? Secondly, how would you use that kind of a rally? Is it an opportunity to sell into the market or do you think this time there is more longevity to the rally?
A: Sell into the market is the function of where you are today. I would tend to believe that by and large, most domestic investors including our customers are largely underinvested. So, I don’t know what you can sell into. I think all of us are looking at adding portfolios, so looking at oil marketing companies.
By today we should be putting a report out on in terms of metals, that is it a good time to start getting into things like Hindalco and Sterlite, which have seen a severe cut back in the price. If any economy has to turn up, these stocks will perform faster. Cement could come up again prompt. Banking of course is the best bet because it’s the most protected sector.
So, I think by and large, we are comfortable to say that some of the sold off sectors, the biggest ones, the metals and oil marketing companies could give the best kind of run up in the market. If one wants to put the money there. Be safe and be in banking so that’s good enough.
Q: I didn’t hear IT in that list. Has the time come to sell down IT after the numbers from the big four?
A: I don’t know anybody who holds IT now. We haven’t had IT stocks barring a small period of Infosys. As I say Infosys, we will buy before the next quarter results. I am 100 percent sure because next quarter, they will give us stellar results and the price will go up by another Rs 400-500. Longer term, if one looks, they are not hiring people. Their net hiring is lower. If you are not hiring people today, you can’t deliver stellar results in next 12-18 months.
Global markets, as Europe is shaky, America is doing well, but local companies are competing hard. In India, just two companies are doing well and two are doing bad. So, if Infosys gets aggressive on pricing, that wheel might rotate. As a sector, it has got nothing happening for it. One has got so much more value lying in other stocks.
We just said metal; they have been killed, burnt and buried in the ground. Whenever economy moves, they will move. We have got cement, which has corrected radically. We have got infrastructure companies, which you may not want to buy today. However, they are waiting in the wings. So, there is so much happening this side, why go forward 5-10 percent upside in IT sector at all.
Q: For the market, purely in the near term, what kind of a range would you give it at this point in time because May doesn't have the best reputation as we know? How would you approach the next series?
A: Unfortunately, our views are becoming shorter and shorter in time frame. That’s the unfortunate reality. The long term investor in our view is by and large getting hurt very badly. So, we are saying, ride this upside for the time being. 7-10-20 days, I don’t know the answer.
The mood is clearly on the upside, the mood is not to short so ride the storm. Where it ends up, I am not too sure because it is an index issue. Some may go up, some may go down, but broadly, it is telling you a story that it is not the time to be selling out or staying out of the market.
However, it is also telling a story that the local demand is so weak that when the realisation happens and maybe a correction comes down the line, one must be nimble to get out of it - that’s the bottomline. One can’t buy and stick on it for next one year because that’s not going to pay you a dividend on the strategy.
Q: A stock from your part of the world - JP Associates. Any thoughts on that one and the strength it has been moving with lately?
A: It’s a brilliant stock. It is one of the best trading stocks that I have seen in my life. It always gives a chance to make money. It will travel up to Rs 80, maybe Rs 82. It went to Rs 100 at one time, but that’s not the target we look at and then travels back to Rs 63-65-67.
I think in the last seven-eight months, a round about trip has happened. I don’t know how many times. So, fundamentally, it has got an issue with the huge debt amount sitting on the books. However, on a pure trading platform, it is the finest stock. It is not one of the stocks you want to hold beyond Rs 80-85. One wants to get out of that stage, come back when it corrects and it does correct.
For whatever reason it corrects, it corrects. Long term, I think it’s a 50:50 chance that it will reach Rs 100 again because of the huge debt burden it sits on. But in the shorter term horizon, I think it should see another Rs 5-7 and then one can get out. So that’s the way the stock has played out and I think unfortunately it has become a pure trading play.
Q: We were talking about Reliance Communications but some traction has begun on telecom. You could see it on Bharti on Thursday as well. It has been a volatile sector. Is it time to start looking at telecom?
A: No I don’t think so. I think there are too many loose ends on the regulatory side still running along. You saw the 3G problem with Supreme Court which had said that stop new subscribers. What it doesn’t tell you is when the order comes, it may disband the whole 3G sharing mechanism. This could put the cat among the pigeons because they may have to re-bid again and re-open the circles.
So, there is so much uncertainty. Again, what one sees in telecom space is again pure trading play. Bharti gets chopped down to Rs 270-280 and one starts to buy again.
Reliance Communications, as Tulsian said, is a different animal all together right now. However, the rest of the stocks, Idea, Bharti are pure on the trading zone. I don’t think they have formed investment zone because one can’t make out what they are going to do next year.
Many regulatory issues are pending, the 2G and the 3G issue is pending. I don’t know on what basis you make your estimates on earnings. Stay away, but it is a pure trading again. If it gets cut 10-15 percent again, you buy and you sell again. However, I don’t think it’s a hold beyond a point about 10-15 percent from here, it doesn’t form a hold.
Q: Are there any stocks on your list that you would put money into with an investment horizon, anything with a 6-12 months perspective?
A: What we have been talking about last 10-15 days, actually is the Mallya twins. No more the Mallya twins, United Breweries, little more expensive than valuation compared to United Spirits. Those are good stocks.
Tata Global, we have been saying is a good stock. ICICI Bank, if it gets a reform on the insurance side and they are able to sell some stake - that could form. We have holdings in all these companies so for disclosure - that could form a big play coming around.
JP, we just discussed it. Financial Technologies again got killed quite badly in the market - phenomenal stock, good annuity earnings. So, between MCX and Financial Technologies, one could see a good play happening. We spoke about Hindalco. Sterlite I think it is time to start nibbling in there.
In our view, we are kind of calling it a bottom to say this stock could turn around. So there is a spectrum of stocks. The issue is not what will go up. Today in this market, maybe everything will go up. The issue is in the next 6-12 months, what will give us the maximum bang which means 25 percent returns on a platform. So, this is a kind of universe we are playing with at this point of time.