Midcap tigers to lie low till growth picks: Ajay Srivastava

He finds that investors don’t want to sell or buy anything majorly. “At least the midcaps you don’t want to buy at this stage because with the new paradigm of 4-4.5% growth you rather focus on the mainline,” he adds.

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He suggests focusing on mainline stocks where you get to change your focus to the fact that you will grow at 5%, may be not 8% anymore for the next three years and be comfortable with the company that you invested in. He says low debt companies like Tata Steel or HUL are where an investor should be in now.

“You have got to be in the comfort zone now that companies which can grow and give you handsome profits at 4.5-5% growth rates are where you want to be. The midcap tigers I think will have to lie low for a while till the growth rate picks up,” says Srivastava.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: Would it be fair to say that the market is probably approaching some kind of stable sentiment now with the fear of major downsides having diminished a bit or is it too early to take that kind of confident view?

A: You can take that confident view and most of us are taking the view barring a little bit of an irritant call, the drought which might come around. If that comes around that could disturb the whole fiscal situation, the entire balance of expectation built up in the system. The RBI governor has put a statement very clearly saying - I am not going to move till you move now. The ball is in the government’s court.

So we are expecting the government will start to move on cutting its wasteful expenditure down. So we are in a good zone, people have acknowledged the problem, there is a so-called response seeming to come out of the government’s system except the drought may play spoilsport in a big way. What we are saying is wait till July end and then you start the big buying if you need to start buying into majorly.

Q: If we do get some kind of liquidity from the US Fed, will the market go up in this environment because of risk-on or will it sulk because crude prices might start moving up higher again?

A: You might have a pop up but two economies, India and China the last two times have also seen that the rise is only for two-three days and then we revert back. Barring these two economies which are facing their own sets of problems, everything else goes up in the global world. Barring after the last two LTROs (Long-term refinancing operations) in Europe the indices are still exactly where they were pre-LTROs. So not a long-term pop up but a short-term pop up is on the cards but I don’t think India will participate in that pop up in a big way.

Q: What do you do with cements now? How do you read the CCI’s (Competition Commission of India) order and how would you approach cement stocks from hereon?

A: There are two varieties of investors now - either some of us who have been long on cement for a while. I don’t think we are going to liquidate our positions or have a change of stance on cement. We will be buyers and in a matter of a year or so we should increase the exposure much more because the capacity which is built up in the system should exhaust itself in about two-three years time. We are not seeing any greenfield capacity coming up, no major expansion on the horizon. So you are looking at a long-term excellent viability of cement industry.

If you are carrying a long position carry the long positions. If you don’t have a long position perhaps you wait out a day or two, see how the correction happens in terms of this order. We have to see the order to see what it says. Right now it’s supposed to be rumor so then respond to it by building your positions. But there is certainly no case to go short on this industry because the fundamental dynamics of the industry are playing very nicely and favourably.

Q: What is the extent of the upside to this market? Do you think we can get back to this phase which seems a bit more constructive now after three months to that February high of 5,600 on the Nifty?

A: It’s difficult to guess. Sitting at 5,100, 5,600 looks to be a tall order but closer to 5,300-5,400 would be perhaps a more logical stop on the way up if it happens. It all depends on how the government reacts in the next couple of months. More than international cues it’s the government which has to react on the export front, the rupee-dollar, the fiscal cut, everything.

We may say we are Eurocentric and international issues can change us but the fact is few local developments can energise the market because one of the reasons is Indians particularly are terribly underinvested in equities. We as a nation are underinvested. A lot of people are sitting with lots of cash waiting to get into the market.

In terms of the supply-demand dynamics, in terms of pessimism which was enveloping us, everything is favourable for a big market rally if a few government decisions come and the monsoon holds true. So 5,400 would be a logical point but 5,600 would be a stretch given where we are today.

Q: Do you think we have some kind of bottom in place because that was the thing which was scaring away investors that you keeping going back to those 4,500-4,700 kind of levels again and again. Do you think that fear is behind us, the market may not go up too much but it will not keep on forming a new low every three-four months?

A: We might be feeling sanguine today sitting here in a good comfort zone. The fact is that if at all any event which triggers the FII sale, there is no bottom to this market because we don’t have the capacity to absorb these kinds of supplies. Should that happen, there is nothing you can't put an assumption on it but barring that event of a large scale FII sale I don’t think there are triggers which tell us you go to 4,400 or 4,600 in a short term unless some catastrophe happens.

What is important now is that the government comes in and takes some action. Even if it takes a very minor series of administrative actions, that will be taken as a positive in a market which is bereft of any expectations. So going to 4,500-4,600 barring a big FII sell I don’t think is happening.

We have also seen that every time the market goes down people have made profit; all of us have made profit by the arbitrage. You buy there and you come back, the market comes back. So if the market fall happens to 4,800 for whatever reason it happens, there will be enough buying coming in to say lets get in and take the arbitrage.

Lots of people are there. Liquidity is a flush from the equities side. It’s just a question of that the market needs to get itself more confidence, if it falls about 400 points you will see lots of new buying coming in. So I don’t think its going to go down to 4,400-4,600 barring a big FII sell.