Ride market storm with IT, consumer stocks: Ajay Srivastava

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Turmoil from the global markets has left a huge dent on our market newsflow. Last week, saw our market lose 5% due to weak news coming from Europe and the US, with broader markets getting the tail-end of the stick. Investor nervousness may continue through the course of this week as well unless, globally, things take a turn for the better.

Ajay Srivastava, CEO, Dimensions Consulting, in an interview with CNBC-TV18 says there could be further downside for our market going forward as global headwinds remain strong.

While he awaits some signs of winds of change, he suggests riding out the storm with IT, consumers and blue chip stocks.

Below is an edited transcript of Ajay Srivastava's interview to CNBC-TV18. Also watch the accompanying video.

Q: We have lost 7-8% effortlessly, over the last two weeks. Is there more downside?
 
A: The downside is not reflected by Nifty stocks, it is reflected all around the market, which is about 20-30-40-60% down across the board. This is the more relevant part of the market, as far as Indian investors are concerned. However, there is a story there, you stick to the quality names, and the big size names like HDFC , though it may look unattractive, but you can at least address the portfolio losses.

The IT stock pack, consumer stocks, MNC pack and the main line of the HDFC pack, they all have survived through the carnage without a problem. The lessons to be learnt are definitely more downside as you go forward, the headwinds are very-very strong and I think more is going to come from the outside India, which means that the exchange control situation is pretty grim at this point of time and the government has admitted to it.

What is happening in European market tells us that the Europe funding may not available for long. The silver lining, the Yuan bond offering by IDBI was priced very attractively. People who are tracking it say that there is some appetite for Indian debt in the Hong Kong market. However, it also tells you that the UK market a debt market or even the US market is a debt market, hence, for the Indian debt scene the external situation is not good. We all know the fiscal deficit is not good and you have got to stick to top quality names if you have to be invested or want to invest because there is no other place to go in this market.

Q: Are you expecting anything by way of positive news from New Delhi as the Parliament session begins tomorrow and which possibly can elevate the market woes a little bit?

A: We are all rarely clutching for straws, so any policy initiative can give us good news. Anything which is going to come out would be good news but I do not think the equity market is looking at it. Equity markets want serious credible cuts in the fiscal deficit, in the government spending on consumption areas which is the social benefit scheme. The problem of spending of the government in the scheme has made the budget and the fiscal deficit untenable.

So far the bond markets don't tell us the story, so we know from the government that there is there an expenditure cut likely to happen. Hence, if there is credible amount of it because then you are looking at serious fiscal deficit. If there are any policy announcements like FDI in retail and it has with 100 caveats behind, it would make it really unviable and will not be good news for FDI investor to come in.

Q: Do you see a big impact on the Bharti stock or on the market itself on the CBI filing FIRs, over the weekend?

A: I don't think there is a big impact immediately because the gap between an FIR filing versus a prosecution will take a year. However, it will certainly dent people who want to get into this telecom story. I don't think Airtel will have a major blip in the pricing, there may be a minor correction but I do not think people are going to get out of Airtel because they have diversified into Africa for a good reason and it is also showing up at this point of time. The broader issue is the impact on sentiments.

Q: How are you reading the Kingfisher situation? How do you think it will pan out?

A: One cannot figure out why the airline is so mismanaged. It is a good product, I think badly commercially managed and the promoter needs to find a way to get it back in order to run the airline. I do not the think world is going to end if tomorrow Kingfisher goes away but I think it is up to the promoter who has the financial resources to bring to the table and revive the airlines and get into nitty-gritty and make it profitable. I do not think it is a case of bail out, or a case of restructuring I think it is a case of pure promoter managing his company better and funding it.

Q: You were talking about a few safe blue chips, would names like M&M find its way into that safe, blue chip list? Can you think of some other names to talk about?

A: We have sold out our positions in M&M about a couple of months back. The signals coming from M&M are three -heavily diversified and therefore there were issues across their performance, 40% growth in sales with a fall in profits it is of significant development in the company, kind of unexplained commodity prices is the other big issue. I am unsure about the stock after that is all the risk they have right now. Also, it has been the most overbought stock in the whole country. I don't think now at this point of time, M&M falls in that category which belongs to people like HDFC, HDFC Bank that show 25-30% growth on profit. Nestle , GlaxoSmithKline Consumer show that profit and M&M has not shown it for the last two quarters in a row now, and there is no reason to believe that next quarter is going to be similar. I don't think M&M belongs to that category now, it is again a risk asset at this point of time and it needs to be dealt with accordingly. 

Q: You track some of these consumer facing names like Jubilant Foodworks and VIP , what have you doing there now?

A: We are only holding the stock. We have Nestle and GlaxoSmithKline Consumer and we moved everything into MNC. We use to have Dabur which we had given up about 2 months back because when the stocks of other companies move up by 20%, Dabur was struggling at about Rs 110-100 band, and is now down to Rs 95. So, it is sticking on to MNC consumer story is the answer. VIP became too speculative; it suddenly picked up fancy because for the listing in Hong Kong and then it was decided the same share valuation should be given to it. I am not sure where the divide is fundamental divide versus speculative divide in VIP, by and large I can't understand that stock very well. So, we are sticking to the MNC consumer names, they are the ones making the money.

HUL results have been absolutely fantastic, so you want to be invested there and those are the places where good dividend rates are coming out of all those companies. The MNC consumer story is what we are doing and that is nothing beyond that. Jubilant Foodworks do not have a position now. It is hovering in the grey area nobody knows how to value Dunkin Donuts Franchise at this point of time. We will wait a while to see what happens in that stock but it is worth entering in at some point.

Q: You were talking about the government precarious fiscal position earlier what have you made of the new disinvestment plan, all the cross holding, buyback etc? Do you think it is any better than the aborted FPO attempts?

A: Disinvestment is filled as an agenda but the core issues is it is not about selling your silver and funding the consumption expenditure. The core issue of disinvestment is that the market is bad; let us cut the expenditure side. The problem is we only want to raise money. I was terribly disappointed by Coal India news, I hope it is not correct and I hope these kinds of ideas are not really getting into serious content that move the cash around. Government of India owns 90% of Coal India in any case, so the cash balance belongs to you as a shareholder. Hence, I am not very clear that this disinvestment agenda would find support with the market per se, they may do it for optical purposes but I do not think it is going to find help in the market.