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Last Updated : Sep 09, 2016 06:13 PM IST | Source: CNBC-TV18

Avoid consumer cos, bet on pharma & road cos: Dimensions

Speaking to CNBC-TV18 on the development, Ajay Srivastava of Dimensions Consulting advised that investors should avoid consumer and capital goods sector and instead look at stocks like liquour and pharma companies operating in niche space such as Syngene International.

Yes Bank on Thursday pulled back its USD 1-billion qualified institutional placement over a misinterpretation about the period for which the QIP needs to remain open. Speaking to CNBC-TV18 on the development, Ajay Srivastava of Dimensions Consulting said that it's yet unknown as to what transpired at the bank. Srivastava said one can not figure out the real reason behind the deferral, adding that the the QIP deferment is a stock-specific issue.

Srivastava advised that investors should avoid consumer and capital goods sector and instead look at stocks like liquour and pharma companies operating in niche space such as Syngene International.

Asserting that there will be a major consolidation in the NBFC sectors in the coming years, he cautioned investors to be selective while choosing NBFC stocks. He added that there will be only 10-12 NBFC players in the next 1-2 years. Smaller banking sector stocks such as Lakshmi Vilas Bank are a good bet, he said.

He also said that road construction company stocks are a safe bet and with festive season just around the corner auto stocks make a good play as well.

Below is the verbatim transcript of Ajay Srivastava's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Anuj: What are your thoughts on Yes Bank?

A: It is disappointing. One cannot figure out what exactly happened that is the first part. Where was the fault line because this is not industry fault line, not market fault line, it is a very stock specific fault line which has come into the picture at this point of time. I cannot say very much as to what exactly transpired but doesn’t augur well as to what happened behind the scenes and it is just conjecture where everybody can say what happened but something seriously went wrong. That is all I can say. It is not the market, it is a stock.

Sonia: Do you think the issue would have saved you if there was 4-5 percent discount that was given?

A: Certainly not. What we are hearing is the fact that there was a major issue -- the issue would not have gone through. What management is saying is something different but our sources say that issue was getting into a problem in terms of even the pricing, in terms of even the volume demand as the price start dropping, people were walking out of their order book. That is exactly what I said. We are not very clear what transpired at the bank in the last month or so to the build up of the share price and therefore the consequent investor reaction, which  caught the company and the promoters by surprise including the merchant bankers. So there was no demand yesterday morning, there was no demand for the stock. It didn’t matter what price you adjusted to.

Latha: At the moment, the market doesn’t seem to have the spunk to go ahead and cross 9,000, it may only be butterflies in the stomach for probably a few days but at this juncture, would you use this dip to buy and if yes, what would you buy?

A: The chase for yields is on now in India. It was global problem, now it is Indian problem as well. So we are all chasing and that is why you see specifically -- yesterday there was a movement in pharma, pharma did not perform, there was a movement in road companies. So they were not performing well. So the chase will continue and one has to be very clear -- at this point of time buying means only two things, one you must be willing to keep the stock for a minimum year to two years because anything can happen to the stock in a period of three-six months.

Number two is you need to stick to our quality, we are back to the same issue we were. At the peaks, quality will survive and you will have lots of other stocks.

Third is, you need to churn out of smaller midcaps into the bigger midcaps. That is very important at this point of time because retail liquidity should be a focus and not necessarily the returns even if you want to exit. I am not sure if there is a real panic to exit but I think the point is that focus on quality at this point of time, focus on performance, we have already seen the huge upsurge in steel, it got disappointed yesterday so you will see these disappointments coming. So you stick to one-two sector, we are definitely off IT, we are not even talking about it, consumer sectors like Hindustan Lever etc, we are totally off those stocks, we have sold out completely. We don’t want to be in these stocks.

Number two stocks is capital goods sector where we have got short positions running there. So we are saying stay clear of them. So don’t go by capital goods because they look very cheap.

You saw BHEL which had one upsurge and it is not gradually coming back etc. So stick out of the sectors. For the time being, there will be a time to buy capital goods but perhaps the time will come in maybe two-three months time but not today or maybe if you want to be early fishers yes, but it is not the place to be right now.

Sonia: What is the place to be right now, what are the two-three sectors that you like?

A: One of the sectors we have been looking at is the smaller pharma companies in the niche space that we have put in our money and people like Syngene etc, where it has done reasonably well and we are comfortable that they will grow quite nicely at this point in time.

The second one is we have spotted is the couple of these smaller banking sectors, one of them is Lakshmi Vilas Bank. For disclosure, we have a holding there -- there is a pricing mismatch and there could be a trade that the bank might get sold or they might get merged etc.

The number three sector is the road construction sector. It performed then it retracted back but it is going to come back again in a big way in the next 12-18 months and you already saw one big development of IRB Infra having an issue, which they are going to put up all their assets in to a read and raise money against that. Those developments could augur well. So you are sitting there.

That is roughly the space that we are looking at this point of time. Auto remains where you want to hide at this point of time -- I won't say hide. You should be pleasantly happy with being in the auto space given that Diwali is round the corner. So auto is one place we can happily live with at this point.

Anuj: You spoke about autos. Two sectors which have become not ancillary but big sectors in their own right, auto ancillary and NBFCs. We have seen big rallies in both these spaces and NBFC of course is a completely different case but even auto ancillaries have done well, anything that you like here?

A: We believe that the right money is made in the brands and you will see over the last five-seven-ten years -- take any history at all, ancillaries have always underperformed the main sellers, which means that the car companies, the auto companies will give you much better returns than ancillaries. So our standard advise to all people is stay out of ancillaries -- if you want to buy ancillaries, might as well buy the main stocks because they will give you better return. 10-20 year record shows that very clearly.

On NBFCs, you have to be very selective -- two things are going to happen next 12 months, consolidation is going to be the name of the game because 20-30 of these cannot survive. There is a cut-throat loan disbursal happening in the market, which will come back to haunt everybody. Everybody is peddling loans. It is reaching a point where there are 20-30 NBFCs -- all stocks that are at peak at this point of time and I would believe that in the next two years not more than 10-12 will remain, so you need to figure out what the 10-12 are -- one of them would be Bajaj Finance, definitely it will be top of the line, it will remain as a big player in the market but the smaller ones will have a tough going because the fight for the market share is on. So what is happening in telecom is now repeating itself in NBFC.

Latha: Let us end with one of our favourite sectors, liquor, which ones do you like?

A: There are only two stocks in the liquor industry by and large. United Breweries Ltd (UBL) and United Spirits Ltd (USPL), rest are the much smaller lot. That is a game of patience because it is not going to be in upsides. In UBL, the game of patience is going to be that Heineken will buy you out sooner or later at very attractive valuation. USPL, the same thing -- the company will go private. So these two stocks are a game of buyout not of fundamentals.

Live with it, there will be a buyout offer. The last offer was 2,800 or something, USPL so stay with it. So we are a big buyers, we always buy liquor stocks at every correction but it is not a game of fundamentals, it is a game of eventual buyout by two big majors.

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First Published on Sep 9, 2016 10:08 am
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