Don't buy Indian mkt now, like HCL over Infosys: Dimensions

Bearish Ajay Srivastava, CEO, Dimensions Consulting sees no rationale to buy equities at this stage.

"The government is trying to reduce its deficit, which means it is withdrawing this stimulus to the industry and consumer demand will keep falling. If any money comes to India is only because of liquidity overhang and nothing else," he said in an interview to CNBC-TV18. He cautions, volatility is here to stay and the market is headed lower from current levels in the next one month. In June, the Nifty could fall more than 200 points from the current levels and see 5,600. So, if is looking to book profits then this is time. However, one can look at buying specific stocks now. From the pharma space, he remains bullish on Sun Pharma. One can also consider investing in Coal India and Cairn India now, he suggested. Despite Narayana Murthy’s return to Infosys, Srivastava is not so gung-ho on the stock and cautions that its June quarter earnings are likely to be worse than January-March. "For this company, I can only say that the Pandavas have found their Lord Krishna back. They were a lost tribe and I think they would be taken to wherever they will be taken to," he said He prefers HCL Tech over Infosys.  Given the fact that demand is contracting, one should stay away from high-beta sectors like real-estate. On the macro front, he rules out the possibility of a rate cut by the Reserve Bank of India (RBI) in its June policy. "The RBI governor is the only sensible man in the government for the last two years telling you the right thing. Inflation is high, the rupee is crashing and you can't afford to have interest rate cut on top of this," he explained. Also read: Can Narayana Murthy revive Infosys’ flagging fortunes Below is the verbatim transcript of his interview on CNBC-TV18 Q: It was a rocky kind of a close on Friday. What do you expect to see from the market because it seems to have entered a more turbulent space and this liquidity argument is really getting thrashed around?
A: The liquidity argument is absolutely valid because the question is why should anybody buy in Indian market today? There are specific stocks which one can talk about but in general there is no absolute rationale to buy the Indian stocks today.
The government is trying to reduce its deficit, which means it is withdrawing this stimulus to the industry, which means the consumer demand will keep falling. So economically, there is no rationale to buy unless you have excess money which you don’t care about.
If you look at three year perspective, I don't think foreign investors, net of rupee-dollar difference; have made any money in this market compared to any global market. So there is no rationale to buy Indian stocks in general. If any money comes to India it is only because the liquidity overhang and nothing else. Q: What do you expect to see through the month of June? We have got a couple of these important policy events going. Do you think it is going to be a volatile market or you think that you would be primed for sharp downside this month?
A: The point is that this is a good market for being stock specific. If you are stock specific, if you are in the MNC companies, if you are in the takeover companies, you are fine. I don't think they will see sharp swings. 
However, if you are in company like Reliance Infra, those are companies which are going to see sharp swings up and down because there is speculative interest there. The stock went from Rs 316-440 and then back to Rs 360.
In terms of market, I think it will be volatile but what has happened now is the re-rating has started in a manner of speaking. This market is not going to go anywhere majorly north. If it is time to book profits, book profits. So sharp upward swings could happen but will be accompanied by much bigger lower swings.
Overall, we believe the market should go down over what we see today compared to going up in the next 30 days. Q: On Infosys, what does Narayanan Murthy's come back mean for the Infosys stock?
A: The Pandava's have got back their Lord Krishna - that’s all I can say to them. They were a lost tribe and I think they would be taken to wherever they will be taken to. If you are saying should we buy the stock then perhaps the answer is no because the June quarter results could be looking more disastrous than what we thought and that is why this emergency move to get in Mr Narayanan Murthy, etc.
However, the critical point is that what kind of company has this becomes now; it had a cozy club of independent directors who appointed KV Kamath to come in but Kamath could not perform, so he goes out and NRN Murthy comes in - so that is the reason I would not buy this.
If I have to go buy, I will go buy an HCL Tech, a TCS because Infosys has got a problem. Q: What about the big policy in June? What are you expecting from the Reserve Bank of India (RBI)? Last week the governor made some hawkish statements where he said that inflation is still a concern, they will continue to focus on the current account deficit. Would you rule out a rate cut this time?
A: Of course, dead right. Look at the rupee-dollar, he is telling you the right thing. The RBI governor is the only sensible man in the government for the last two years telling you the right thing.
Inflation is high, the rupee is crashing and you can't afford to have interest rate cut on top of this. So, I don't think interest rate cut is going to happen. However, I don't think he is going to increase it; he has kind of put a warning to the government saying that they have to do some more things than what they have said. Otherwise interest rate cuts are on hold for the time being.
_PAGEBREAK_ Q: What do you do in terms of a tactical approach? You pointed out that a couple of stocks are still interesting buys. What space do you buy because real estate or basically high beta has got bludgeoned; some of these defensives are also in a spot of bother. What looks like the best space to approach in June?
A: I don't think defensives are in a spot of bother in fact they are in a beautiful spot - wherever there is a sell out, there is a simultaneous buying coming in. So in terms of pure consumer stories, where MN's are involved, I think it's a very safe place to hide and bet your money on them. They have done a good job.
Last time, we spoke about, the liquor companies they did a fantastic job and they will keep doing fantastic job. Pharma companies, the safe bet to be in is the standard company like Sun Pharma, etc. It may not give you spectacular returns but unlikely to give you losses of a kind that you saw in the market.
So, there are pockets of segments which are pretty okay like, pharma is pretty, even IT is safe haven with rupee at 57-58, export companies are also pretty okay at this point of time.
If there is a large cut in private bank prices, they would be good buy at some point of time in the next two-three weeks. So, there are four-five traditional havens which continue to be the havens and that is why they were called the havens. Q: What does that mean for the rest of the market? The current rally we had, whatever it was worth in the last month was extremely narrow, and maybe about 10 stocks participated. Going ahead, if your call is that it's the same bunch of guys who are going to give you incremental out performance, where does that leave the rest of the market and narrow it has become?
A: The market is beautiful for a speculator. You have seen the volatility in the market. If you were positioned little bit on the right side of the stocks, you could have made good money out of the market. For an investor, stick to the havens because the demand in this country is contracting and that is given; in the next 12 months again it is going to happen.
Therefore, if demand is contracting, then the so called high beta stocks cannot perform. Real estate is in for a huge overhang. Entire India has put their entire amount of saving into the real estate market – that is what has happened in the last 24 months. So, if anything happens there, then you have got mayhem on the street. I don’t think high beta is going to respond to the market where is demand is contracting. Q: A couple of big gainers of last week that gained on the back of good earnings. Would put any incremental money in them - Tata Motors, Coal India, IndusInd Bank and Sun Pharma?
A: Sun Pharma is a given. It’s a good buy. I would still buy Coal India because pricing parity-wise, they are still way off globally. It’s a quality asset, it’s a quality company, and it has got huge cash reserves. So, whenever they get to a petroleum company kind of a pass through environment, they will perform well.
For Tata Motors, demand is collapsing here but globally they are doing better so it’s a trade off call.  I would not put my money there. IndusInd Bank is priced quite highly. It had got a run up of 25 percent last year and the verdict is out whether they will continue to do 25 percent - I would not believe that the price will go up another 25 percent, so, I would stay clear of it.
However, Coal India is a quality asset, we should definitely buy it. Sun Pharma, if you have it, keep it going. Q: The one space that has been getting a steady dose of good news is actually the entire oil and gas pack. What would you buy from there now?
A: One must buy the oil marketing companies because that is where you are going to make your money. Oil prices worldwide are on a downswing. You have already seen this close to USD 91 per barrel and so on. Although India has not got so much benefit of that thanks to rupee-dollar.
You tend to keep away from ONGC at this point of time. You can look at Cairn Energy because the volume expansion is going to be quite substantial. Oil marketing companies are there for the picking. I think one or two years down the line, these stocks could be almost double the way liberalisation is taking place. Q: A space you tracked in a fair amount of detail is capital goods and basically over there the number of disappointments far out weight surprises in earnings season. Is it still a good idea to avoid this space?
A: You do not buy that sector. The demand is contracting. There is no reason for anyone to put up a factory in this country. Capital goods sector still has long way for traction to come back, for earnings to come back and the growth to happen. You need to climb up early but I think that early climb is going to be sometimes maybe at the end of this year, early next year but certainly not in the next six months. Q: Since you are a little nervous about the market trajectory in the month of June, what could the range look like? As a floor for the market, do you think we are headed back to those 5,400-5,500 levels or could we be largely unscathed around these levels itself?
A: Perhaps it will touch 5,600, but 5,500 is difficult to say but then anything can happen on a bad day.
Indians are under invested in the market. If they smell a bargain, they smell a speed reduction, they will start to buy into the market, and speculative interest will come back. That will kind of give a nice bottom to this market. Maybe 200 points and not more than that should fall in this market. But again this market is very funny. It has got 20 stocks, which hold up the Nifty but the rest of 100 get decimated in the market by 25 percent.
So, don’t take comfort with the two-three percent. I think the comfort should be that where are your holdings and your stocks? Because stocks are moving up and down by 25 percent, the market may go down by only one percent. So market may have stabilised at around 200 points but the stock could be down by 20 percent.