IPO euphoria not responsible for sell-off: Dimensions

Speaking to CNBC-TV18, Ajay Srivastava of Dimensions Consulting feels that the investor interest in primary markets does not have great ramifications on the secondary markets. There has not been too much diversion of funds from the secondary markets to the primary markets, he feels.

A positive surprise from the Reliance results may propel the markets, he feels.

Excerpts from CNBC-TV18's exclusive interview with Ajay Srivastava:

Q: How does the market look? Is the sheen coming off a bit?

A: Yes, most certainly and it is a good enough time. It's come off because quite certainly certain sectors, certain stocks have become frothy over time, but having said that one should not become Cassandra’s doom and say all's down and the US is going to go down, so we are also going to follow suit.

Our banking sector looks very strong and robust compared to the US sectors. You have got an ICICI Bank, HDFC Bank etc, so there is no need to be overly pessimistic. Yes, there is a need to be cautious, but I would say on this side, if you are looking at stocks with good fundamentals, you should always stock them up at this time when the fear is out on the street. There is no point just being pessimistic, keeping 100% in cash - that’s not the answer. The answer is, move the portfolio to top quality stocks, which you always wanted to buy but never could.

Q: What's your sense of the primary market action right now, on the last couple of issues and the kind of interest you are seeing there?

A: I am making an IPO for Ambani here because that is so valuable in this country. I can’t argue with the fundamentals, I can’t argue with the fact that there is a grey market price, but this kind of froth is really not the healthiest thing in the market. The kind of frenzy we are seeing out there is good because we are getting a lot of people to equity markets, but expectations are so high that if the post listing price of Reliance Power does not stand up to scrutiny, then there would be a lot of bloodbath in the streets. So yes, the frenzy is good but the after effects could be disastrous.

Q: What do you think the ramifications of all this primary market interest are going to be? Are we going live with a lot less money till the issues are open? How do you think a lot of these power sectors stocks are going to move up until the time we get to an eventual Reliance Power listing?

A: In a manner of speaking yes, there is some divergence of liquidity from the secondary market, but we haven’t seen too many people selling off to put the money in the IPOs. It's fresh, incremental money coming into the system and to that extent it is positive, because post the refund, you will see this money rolling back in equity markets. In terms of power stocks, I think everybody has realised that they are overvalued at this point of time. It is not the best idea to start putting fresh capital behind power stocks. So one would not tend to believe that there would be a big rally unless the listing of Reliance Power surprises everybody, which looks difficult but anything can happen. 

Q: Reliance day today, if there is some kind of surprise from earnings, do you think that is enough to turnaround sentiment?

A: Reliance has always been the bellwether and if there is an earnings surprise, definitely it's going to give an uplift to the market. One of the reasons we are seeing a little bit of gloom in the system is the industrial production numbers, results are looking okay, but nothing extra ordinary; so the mood building up is that the economy is slowing down, the profitability will not be as attractive as it seems.

So if there is any positive surprise and particularly from Reliance, which we certainly expect it to be, there will definitely be a fillip to the market and I think that’s important, the result is critical.

Q: You have seen the TCS and Infosys numbers now. What would you do with these two stocks?

A: In a sense, we are all terribly under invested in IT stocks. I don’t think it is the time to rush in if the results are very good. If you look at it, the numbers are very healthy, but the rerating is still little far away. So one would not tend to put capital but it’s coming to the point where fresh investment allocation might start to fold in if there is another 10% correction in the price or a little more time lapses and we have greater certainty. Certainly it's now looking strong compared to may be a quarter back.

Q: How would you approach a stock like Ranbaxy on the eve of its annual numbers? At Rs 380 can you make a case for buying it or let it be?

A: I think Rs 380 is certainly among the lows that the stock has. There is some good news, which should come and get factored in terms of their better operating performance and their domestic performance is better and the segregation of the two companies - the research company, the NC company and this one should be strong, positive. Not too much of an upside, but I think 10-15% upside is definitely on the cards.    

Q: If we have a rough start or a rough day of trade today, give us three stocks you would go out and buy in a falling market?

A: IDFC is one stock, which I think is a definite long-term buy and we would like to buy in financial services. Geojit is certainly a good buy, because there is a lot of corporate action taking place and also HDFC.

I would focus on the financial sector at this point of time. We have seen substantial weakness in BHEL, which is reaching a critical point where fresh investments can be factored in. These three, most certainly I would like to buy if there is a huge correction today.   

Q: What do you think of JP Associates as a stock now?

A: It has done a very healthy performance in the last 12-months and it is still showing pretty strong signals in terms of a performance, in terms of corporate action, the listing of their subsidiary etc. So if you have it, it is a strong hold. If you don’t have it, if there is a major correction then definitely accumulate.

Q:  What’s an easier case to build from here, from this current level of just around 20,000, is 18,000 easily to predict or 22,000?

A: Let's be positive in the morning, it's better to look at the upside today, because we have too much of gloom and doom surrounding us. We should look forward to the budget. We are ignoring the fact among all the global issues that the budget is less than a month and a half away and we should see strong positives coming from the budgets. The industrial slowdown has created the impetus for rate reduction in the local market, so that should give an impetus to the market. So inspite of all the negative things in the international scenarios, we are getting a little more bullish about the domestic initiative, which is going to come in the next 30-days, so it is better to look on the bullish side.

So if one is looking at an upside from here now to about 3,000-4,000 downside.

Q:  Any dark horses you are watching for in these earnings this time around? There was a brief spark for the FMCG space, but that seems to have died out as well.

A:  One of the stocks I am looking at are the engineering stocks. If you look at the last 9 months, these stocks have not moved at all and there has been kind of a fatigue element there. So we are closely watching and we are watching BHEL, so we are watching their performance to say, can they give us spectacular results?

Engineering is one place, which has been lackluster in the last 9 months. We think we are looking at the results and to say that they will come up again with trumps as they did last year.

Disclaimer:

It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed.