Stay in cash as long as Nifty under pressure: Deven Choksey

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Stay in cash as long as Nifty under pressure: Deven Choksey

Deven Choksey, managing director of KR Choksey Shares & Securities Pvt. Ltd said that the market is nervous on various counts and it is prudent for investors to stay in cash.

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Excerpts from Midcap Radar 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 KS Oils BSE | NSE 29/05/12 Are Mutual Funds betting on KS Oils? Other Stocks in this news Karuturi Global | Den Networks | Arvind | Alok Industries | Jet Airways | SpiceJet |

Indian market has taken a sharp downturn on the back of weak global markets. The NSE Nifty has closed below 5000 today for the first time since June 8th 2010. Speaking to CNBC-TV18's Latha Venkatesh and Gautam Broker, Deven Choksey, managing director of KR Choksey Shares & Securities Pvt. Ltd said that the market is nervous on various counts and it is prudent for investors to stay in cash.

"The corruption issue is taking away the government's attention from policy reform decisions and that would significantly affect the progress of the economy going forward," he added.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: What really is the sentiment in dealing rooms at this point in time? Why is it that with some regularity you are seeing a selling especially in the mid and small caps?

A: The market is nervous on various counts. Investors and foreign investors feel that this freedom from corruption is going to continue for longer period of time which means that the government's attention would be moving away from taking any policy reform decisions and that would significantly affect the progress of the economy going forward.

This is the reason for which lot of selling which is happening in different counters. In fact, in some of the steady counters, where the business is not getting affected, are also being sold at this point of time. So this is a bit worrisome chapter. The participation from retail investor is absolutely thin but the fund investors are also remaining cautious, generating cash in the portfolio but the activities are very thin.

Q: A lot of the stocks that are falling have really got nothing to do with what the government would do on policy; these are very speculative stocks like KS Oils , Karuturi , Den Networks , etc. So why would Arvind and Alok be dependent on anything related to policy at all? We have seen stocks fall without hindrance. Is this that SEBI notice on margins and an expected selling because of that or is it because at certain levels you start worrying about pledge shares, what is eating the market's peace of mind?

A: In some of the cases you mentioned there investor wants to sell some shares, there are no buyers in the market. In such a situation, if an investor wants to sell, he will press the button on the sell side and if there are no buyers with marginal volume, then we will see fall in the price which would invite the attention of other investors and they will also participate.

So to an extent, this is not a situation which one would blame it on SEBI and the margin related norms which they are implementing. To my mind, those companies are getting severely punished who have taken money from lenders and those lenders have started asking back the money in name of security.

It again proves the point that if the lending and borrowing transactions happen out of the market; this market is always going to have these problems going forward as well.

Q: There are no takers for stocks like Jet Airways , Spice Jet but the act of beating down those stocks to completely diminished valuations, what does that tell you, is it sort of flight away from these midcap companies and people getting into larger caps where there could be safety or visibility of earnings? Is there a shift going on or is this more of a technical issue?

A: Margin of safety is definitely demanded by investors and people are taking flight and moving into safer zones. The companies that have got higher amount of debt are getting severely punished in the first level.

The second factor is about debt; if the economy slows down and if the company is not performing up to expectations, and staying above the valuation level, then these are various considerations which are applied.

If the general market is quoting at around 12-13 times price to earnings ratio and some of these companies are quoting at 18-20 times price to earnings ratio, then the market would adjust itself and those with premium valuation would get punished.

This is what the market is doing because the companies want to generate cash in the hands, take advantage of capitulation situation, and take the panic bottom advantage going forward. These are the excuses which would come up but these are the reasons due to which the market is falling.

Q: What are you advising your HNIs to do with their money, are you asking them to stay away now, pool in little of cash, etc?

A: We are not asking to pool in cash at this point time. On the contrary, we have created cash in the portfolio and we are sitting on cash. On one side, you are getting 10% rate of interest from the banks and on other side, the market is punishing you.

So it makes sense to stay in cash, protect your capital, etc. Take an opportunity at such point of time when the market is indeed in panic mode, deploy your cash into the market but at this point of time we sit on cash.

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