Current rally good opportunity to rejig portfolio: Dimensions

The market has taken off sharply since witnessing some volatility on Budget day. Following the highest single-day gain (777 pts) in seven years yesterday, the Sensex has tacked on another 300 points today.But Ajay Srivastava of Dimensions Consulting has a word of caution: the current bounceback may have some more legs to go but till economic fundamentals solidly change, investors must be cautious to not over invest."This is a good opportunity to rebalance your portfolio [and lighten up on stocks that were badly hit]," Srivastava told CNBC-TV18.He also said the RBI's move yesterday to tweak capital norms will help banks shore up capital but this may be a followed by another NPA hit in the fourth quarter. Below is the transcript of Ajay Srivastava’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Sonia: Have you been able to believe it or are you still dreaming?A: Where it came from, I do not know, but it is good it has come because it was much needed and when such a rally comes, you just lie down, relax and watch it. You do not go and participate in it. That is what we told our investors, listen you recovered your positions quite well, whatever holdings you had, look to be reasonably valued, but you do not jump into the fray because it is important to understand that the global construct is also good for equities, so we have also risen along with that but not in a manner that we saw yesterday, it was unexpected.That may be God’s way of telling us we are humans and we were gaming the market so easily, the Gods said I am going to take away some profits of yours. Okay, that is a due to the Gods. But having said that, I think there is a due note of caution. We have seen this euphoria and I am sorry to be the cautious one today. I have seen hundreds of buy calls coming in the system overnight, but I still believe that the Budget, if you analyse the Budget and look at the banking sector reform, what happened yesterday, the banks are told that you revalue your properties and 55 percent of that, take it to Tier-I capital. Now, Latha is there, she can tell me, is that allowed into the Companies Act? No, no company can do it. You cannot revalue your assets and take it to the capital. So, when we get happy about the nationalised bank, we are seeing very clearly that RBI is preparing the bank for a big hit on the provisioning in the month of March. So, this is the balancing on the capital side. So, when they report capital on March 31, they is some semblance of Tier-I capital. But, the kind of measures that you see of revaluing assets, that is unbelievable but that has happened, but it has happened.Market may feel euphoric about it, but let us all understand that why it has been done is because big hits are coming on the balance sheets on March 31, RBI is preparing on the capital side to augment the capital by book entries to balance off the provisioning. So, while we are feeling euphoric in the rally, let us enjoy it, let us not overanalyse it. But let us be cautious that there are elements behind this rally which need to be looked into. You do not jump in with both feel first into the rally, and to look to the 100 buy calls, because economy is still struggling, things have not changed, 11.5 percent growth rate of the government is not going to happen. Government has taken out Rs 2 lakh crore of debt which is to take to fund capital expenditure (capex) of the balance sheet to show that we are not going to borrow more.So, if you really go back into the budget, there are lots of things to look at, but for the time being, no quibbles. People need a relief and this relief is most welcome.Sonia: I take your point that when you see such a sharp rally, it could just at best be a bear market pullback rally. But what will convince you to put fresh money into the markets?A: As I said, it is always a balancing act. There are two questions that we have to answer. One is how much are you invested in already and number two, which sectors you go to. People who have been invested 100 percent or 80-90 percent, this offers a good opportunity to balance out the portfolio. And I must say, the overweightage given to the financial sector, this gives a reasonable chance to people to alter it. When you said what will convince me to put the money in the market, I will be convinced if I see the fundamentals changing in 6-9 months timeframe. If you convince me that, I will put whole hog my money in. Right now, we are still at 70 percent plus cash and we intend to remain that way because fixed income as well as our plays on commercial properties have worked much better than equities.So, that is why I said, when you look at book keeping, measures of PSU banks, that does not give you comfort, that does tell you that every rally gives a short so a fresh opportunity to make money out of the PSU banks. The business has not changed, fundamental has not changed, nothing has been done to these banks. The operations have been where they are. The economy is struggling and just by book entry, you want to augment the capital. Those optics may look good, stock market may react for 2-3 days, but the reality will come. So, the real moot question is, has the government given the right trigger to the market to grow. The answer is no. You look at how the prices have gone up for automobiles yesterday. Readymade garment prices will follow soon. Jewellery prices will follow soon. And will the pass through effects will start to happen. Pay Commission comes in, wage rates will go up in the economy. So, if you look beyond the Budget, you do not look at a fundamental change, you already saw the number of two wheelers, you saw the number of cars and automobiles, they are not very healthy at this point of time. So, unless there is some fundamental change, that is one. Number two is, yes, global construct may have changed, which helps us makes decisions, but has it changed decisively, perhaps no. So, I would tend to be still wary to say, this is a time to rebalance the portfolio, enjoy this rally. If you need to book some profits, get out of it. It is a heavy loss making position covered in Capex and all companies, try to find a way to get out of them, not jump into the rally and start buying heavily. That is our call to the investors today. Enjoy it, stay put, but do not over invest at this point of time in the market.Sonia: You were telling us how you would not choose to participate in this level. What about some of the pockets that are seeing a bit of fundamental positive news flow, for example autos, where we are seeing a recovery in volumes in the month gone by. Would that not look like a good space to you?A: I do not know what you say recovery, because I am seeing month to month, the numbers are not moving very much, the needle is not moving, it is lots of numbers year to year are looking much better than month to month. So, if you look at month to month for the last 4-5 months, the traction has not been strong, that is one. Number two, in autos, if you look at the car segment, Maruti is the biggest one is struggling today and the discounts in the market have been huge at this point of time. So, the volumes are being bought today in spite of being insipid. So, when you say recovery, perhaps the recovery could come for two-wheelers because rural spending may go up eventually and therefore, money may filter back back to the UPA model. But my guess is this year is going to be different and we have been analysing that for the reason that if you look at the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) programme as well, lots of money is going towards non-infrastructure related items where the money is subsistence related expenditure going given to people to buy food is what is going to come around. You dig ponds and kind of stuff. You do not build roads and infrastructure, that kind, you are digging ponds really of Rs 40,000 crore. So, how much money will percolate into the consumer system for us will be different this time.