Mkt setup weak; rallies unlikely to hold: Ajay Srivastava

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Mkt setup weak; rallies unlikely to hold: Ajay Srivastava

Ajay Srivastava, chief executive officer, Dimensions Consulting has a short position on the market as of now. Speaking to CNBC-TV18, Srivastava said that the market setup seems to be weak; it may not be able to sustain rallies.

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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

Ajay Srivastava, chief executive officer, Dimensions Consulting has a short position on the market as of now. Speaking to CNBC-TV18, Srivastava said that the market setup seems to be weak; it may not be able to sustain rallies .

"We are looking at a little despair in terms of how the market will recover or have a sustained rally. So, we are keeping a short position, not increasing the position either but just leaving it where it is," he said.

With the earnings season kicking off with IT giant Infosys , he expects results to be better than expected. He is bullish on the IT sector and suggests investors to remain invested in this space for one-two years.

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

Q: It's been a quite start to the year but between now and the budget would you play for more downside or upside?

A: We are keeping a position where we were. We were pretty short on the market, so we are keeping it where it is right now with the recommendation that stay little clear of the market till the budget for three basic reasons. One is that we understand the market has been resilient and it is wanting to go up. But what has transpired in the last seven days gives us a little bit of despair, the kind of rumor mongering we saw on Friday afternoon to take the market up, Thursday was interest rate and Friday was Ambani Brothers.

We saw the five PSU stocks have jumped by almost 50-80% of the value for no reason in the last 5-7 days on hardly any deliveries. This tells you that structure of the market is not looking good for a sustainable ride. There is an attempt been made and only SEBI can tell us what is happening there to keep this market up or bring it up whichever way it can come up. We are looking at a little despair in terms of how the market will recover or have a sustained rally. So, we are keeping a short position, not increasing the position either but just leaving it where it is.

Q: Do you think there is some degree of index or sentiment management which has been going on to keep the Nifty above that 4,700 level?

A: We can only connect the dots and someone can tell us that the dots are actual events. But what it transpired on Friday everybody saw in the half hour the Ambani reconciliation. Then we saw five PSU stocks having gone up. Someone should just total up and see is there any merit in that stock being going up by that percentage for such a low delivery volume? So, they are pointers. We can't tell you sitting from here, you know better. But the fact is something is not happening right.

Q: There has been some talk that may be post the UP election results and the going into the budget you might see something which is a bit more constructive. Are you hoping along those lines or that is a dangerous hope?

A: We are not hoping along those lines because we saw what SP promised yesterday in the election manifesto, free education, free medicine and free power. Now if that's the basis of fighting election in this country and we have 5 more states to go to election and national election is 18 months from now, we are talking of a huge amount of fiscal drain coming there. I don't think any party is responding to it on a fiscal platform.

You may have a strong congress and people are remembering the last general election where there was a 20% lift in the market in two days. There was a circuit breaker hitting the market. People expecting that Congress does well, we will have a circuit breaker kind of environment. But, I am not too sure whether that is going to happen. So, we are not playing for it neither we are recommending for it.

Q: What downside do you see for the market then and what do you think could be the trigger for the next downside whenever it happens?

A: The biggest downside we see in this market is that our fundamental growth assumption assumes some amount of foreign capital and debt coming into the system. We don't think that is a kind of debt and equity which is going to get committed to India in this year as Europe starts to battle its own internal issues. Look at last year, almost 66% of debt and equity capital came from Europe. If that supply gets choked then the way we are going to grow and fund our capital is pretty uncertain.

So, we believe that the European debt crisis is going to emanate into a situation where we will not be able to access enough debt and capital to fund our growth. This means that our growth projection trajectory numbers are not that good. Secondly, we are still the most expensive market among the BRIC nations. Look at our PE ratios, our consumer stocks are running at PEs of 25-30 plus even today in spite of the sharp fall.

You can't have a market running at 20-25 PEs on a situation where we are looking at a very bleak growth forecast. So two things, one expensive internals, second is who is going to fund these growth parameters. We all assume that 7% is a god given growth to us, someone will fund us. For that funding when we go knocking on the door I'll be afraid that there will be nobody home to answer the call.