There is desperate money coming into the market and the sheer lack of other investment opportunities is compelling investors to run towards equity, says Ajay Srivastava, CEO of Dimensions Corporate Finance Services.
However, he cautions, the market valuations are not cheap and investors need to be picky and ready to take 'serious risks' to see healthy returns.
On HDFC Bank, which surged over 8 percent following RBI's withdrawal of restrictions placed on purchase of bank shares by foreign portfolio investors. He believes long-term investors must stay invested in the stock.
Dimensions has few holdings left in the pharmaceutical sector, but Srivastava believes the sector might reach its bottom soon. He feels if one wants to invest in pharma then it is best to start from the top. "Sun Pharma a must if someone has exposure to pharma," he says.
The NBFC space, he believes, is overpriced. It is not the right time to enter the sector.
Below is the verbatim transcript of Ajay Srivastava’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: The Bank Nifty has surged 700 points and that is a space that you have been most averse towards. What do you do now as a long-term investor here?
A: As the long-term investor, for the share HDFC Bank you stay put there. I think you will see correction coming through, but you stay Put there because this is a long-term trajectory of the market and for the premium bank. You don’t go and sell this stock by and large. You must keep it in the portfolio. For the short-term traders of course like us part of our portfolio is short-term, we went short early morning on the Nifty Bank. I think it has been overplayed in the market and we think it will correct itself to some extent maybe today maybe tomorrow, maybe day after, but you don’t go and invest heavily in this market. If you have you stay Put if you don’t have you watch it.
Latha: Would you short any other bank? Would you short IndusInd Bank, HDFC all those banks are up today?
A: We have not been able to figure out whether to short the Nifty - Bank Nifty as such because you get a much better bank for the buck than for the individual stocks. Individual stocks have their own momentum to come through and you are taking a pick and call. But I think in a Bank Nifty situation is much easier and better for you to play up a plus or minus in my view.
Anuj: The other space, this morning we are only talking about banks, is the IT space. We have Tata Consultancy Services (TCS) which will be announcing buyback and indications are that Infosys too at some point. Does this put a floor for the stock, but do you see big rallies from hereon or do you think that is something which is not likely right now?
A: I think, if you need to position yourself it should be on the positive side because given the pressure, let us take Infosys for instances, given the pressure the management is under they cannot have but report a good quarter whatever they do, whichever is the work they got to report a good quarter during the pressure on their back. So, I think our projection is that the next quarter results or at least the next two quarters are going to be strongly positive and they will pull out all the resources, maybe prepone some of the deliveries whatever they have to do – cut the cost if they have to. But, I think you will see two quarters of good quality surprise coming more than the buyback. I think it is a sheer pressure on the companies today to give returns to the shareholders which is now going to cost some of this to happen.
I am not saying in the negative sense that they will prepone the revenues, but I think they will go all stops to kind of report a good number in this quarter. So, you would tend to be long today plus buyback of course is going to add little money to the kitty. But I think you will be on the plus side because the pressure is on the management now and investor should reap some bountiful.
Latha: You like drugs stocks. You have always had an eye for some of them. Now Cadila Healthcare is the one that has got FDA approval that is surging away as well as Biocon is getting more and more approvals or at least filing licences, these and any other drug stocks?
A: Basically, we have very few holding left in the drug stocks. I think at this point if time we have been off the pharmaceuticals for quite a while. You look at Cadila Healthcare as well, look at the 5-7 years history of Cadila, it has not performed even when the market went up, when the drug stocks went up. It didn’t really performed part of the rally so it is not been the greater performer in the last five to seven year.
It may change around, but I think if you look at the relative performance of the company it has not been one of the top gainers or the top performers. I am not sure whether even the new USFDA approval for Cadila is going to mean something for them. I think the pharma stocks need to wait a while, they might be reaching a bottom in my view. But you always start at the top, if you want to buy pharma you buy Sun Pharmaceutical first you don’t buy anything else.
Sonia: If I remember correctly, when we spoke to you may be about 10-12 months ago you spoke very highly of Cadila. Since then have things changed? If I remember you did have a large amount of holdings of Cadila in your portfolio as well, right?
A: No, sorry, I think I am not the right person because I never held Cadila stock ever in my life till date. I never bought a single share of Cadila, so it must be somebody else. I never own Cadila ever.
Sonia: What about the market itself because things are picking up quite a bit or have picked up over the last many weeks and now we are seeing some heavy domestic institution participation return as well along with FIIs. You think this is good cocktail for some more gains in the Index and do you expect higher levels?
A: We are not part of India alone, I think it is a global rally which we are seeing people moving to equities. We are not alone in India and in India we have a different situation is that in my view there is now desperate money coming into the market. The kind of calls we get is people now, it is a frenzy buying. I am not sure that tells you it is the last phase of the rally or tells you it is a start of a multi-year something happening, but the sheer lack of investment opportunities is compelling people to run to equity markets.
Now market is not cheap, in spite of all the recoveries market is not cheap by any standards. You got to be very picky and got to be willing to take some serious risk in this market for returns. So, I think, yes there is a momentum on the liquidity side, but on the fundamental side you need to watch it to be saying that you are buying at a top end of the market, not at the bottom or the medium of the market.
Anuj: Also wanted your thoughts on the auto space because we have seen big rally again play out in Maruti Suzuki which is back to all-time highs, Eicher Motors is almost there, TVS Motor is there. Do you see leadership stay with some of these stocks?
A: I call it the fab 3, you include YES Bank in that it is Fab 3 of the market. It is a must have in the portfolio or you may call it fab 4 with HDFC Bank. The problem with the stock is that you built up a portfolio, you can’t start a portfolio of an auto without Maruti Suzuki. If you build up a portfolio Eicher comes to the top of your mind. My worry is, in fact we have sold off all our positions in auto stocks. We are actually zero right now in auto stocks completely. I think the market has built up a lot more positive sentiment for the March quarter than what we are seeing on the ground. As far as we are concerned we have gone zero on auto.
I think, again that is a point I am saying, you start entering the market this is the first two stocks everybody buys. Buy Maruti, buy this thing, they got a new plant at Gujarat. It is going to come up with some engines and therefore the capacity is going to double. Therefore hopefully over three years you will see the stock moving from Rs 6,000 to 8,000 that is a rough theory of the market on which most people are working upon.
Eicher is the same story that motorcycle will taper off. Light commercial vehicles (LCVs) will come on and with the new government policy replacement coming on so if that is a theory you are working on you are well placed to stay there and keep investing.
Sonia: We can’t end this Friday discussion without asking you your favourite liquor stocks. United Spirits has gone from Rs 1,800 to 2,400 you see more upsides in names like these?
A: Absolutely, and I keep saying this again and again. These are scarcity stocks which you know the company, very drop you buy and you hold. This is not to sell. You will sell eventually at a very high price to somebody who is going to buy it from abroad and Diageo will buy you out. So, I think it is a very safe stock keep going for it.
Anuj: One more word on some of these NBFCs, the way these stocks have moved back and are now trading higher than they did at the demonetisation day or on the demonetisation day any picks here?
A: Sold and short, we have sold everything, we are short in some of them, overpriced in our view and this is not the time to enter. There are many other sectors that we are in for stay but this is not one of the sectors where we are positive with at this point of time. In fact we sold everything it is mostly on short side that we are on the NBFC space today.