Focus on individual stocks; Budget to be a non-event: Quantum

Sanjay Dutt, Director, Quantum Securities strongly believes the best strategy in the current market conditions is to look at individual stocks, adding that it is the time to use investment strategies and not trading strategies.However, one has to invest for the long-term because historically equity markets have known to generate good returns over 3-5 years, says Dutt in an interview to CNBC-TV18.According to him the domestic fundamentals do not justify Nifty levels below 7200. Basically, it is the global headwinds that are impacting India. There are so many moving parts across the globe that even the central bankers across the globe cannot gauge what is happening around the world, says Dutt.The Union Budget 2016 is likely to be a non-event -- "playing to the gallery" -- feels Dutt, adding that the equity market is likely to be disappointed with it.From an investment perspective it is good to look at beaten down sectors like steel, commodities and inward looking economy oriented sectors. One could look at tier II infra plays on back of orders from government, consumptions plays. One could also look at banks at these distressed levels but only those that can survive this onslaught and have the capacity to recaptilise, says Dutt.Below is the verbatim transcript of Sanjay Dutt’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: I remember in times past you called the bottom right most notably in August of 2013. We are again in that jittery area where that 7,241 number could be taken and then technical experts are calling for 6,800. What does it feel; that there are still some capitulating moves that we may see?A: I don’t think so. Whether we go down below 7,200 for a day or two or maybe trade there for about a week or so, but I don’t think that level is sustainable really because domestic fundamentals at least don’t justify it. Whatever we are experiencing in India is because of very strong global headwinds and the global canvas is very confusing at this point of time. A rare occasion, today we saw the Japanese 10-year hitting 0 percent, we saw dollar-yen coming to levels which clearly indicates that the world market is in turmoil. So, it is very difficult to game and I can really challenge the US Federal banker or the Indian Central banker will not be able to actually tell you what is really happening in the financial markets and where exactly everything is going to settle.So, to cut the long story short, I would say at this point of time the best strategy would be is to look at individual stocks. Equities won’t be dead, equities won’t go out of fashion, money would still be made in equities but don’t try and game that 7,200, 7,000 or 6,500. Just stick to conviction ideas and keep adding in them, keep shuffling your portfolios.Sonia: I take your point that there is no point looking at these levels on the market but the problem with that thesis is what if the price correction comes to an end but we have a very long and painful time correction in this market and it takes a couple of years before we get the levels in individual stocks that we had in 2015. Then how do you approach the market? A: It does not matter because if you should look back, people who have made money in the market have not made money in one, two or three years. All of us who made money in stocks and have made real good big money in stocks or even in portfolios through systematic investment plans or otherwise, have been over a span of 5-10 years or three years at least. So, therefore you need to be focused on the market and actually use investment strategies and not use trading strategies and just filter out this noise.Like I said, these are rare occasions, these are rate times which occur once in centuries where there are so many moving parts across globe, whether it is Europe, whether it is Japan, whether it is what US got to do with its interest rates, whether Yellen took the right steps by increasing the interest rates at this point of time. Like I said, even the Reserve Bank of India (RBI) Governor or the Fed Governor or even European Central banker can’t really game what is happening because there are so many moving parts we are all dealing with at this point of time.So, the only thing that I can tell you us that company balance sheets is all that matters. So, if a company is doing good business, has got a robust visible topline ahead of itself within India, just keep adding at every declines and just hold in there. Latha: I wanted your view on the banking sector, in particular some of the private sector lenders whose balance sheets look a little better than public sector lenders. There is a double whammy with the global banking stocks now going through a bad patch. We understand that S&P Bankex is at the same level it was in 1996, so, over a 20 year period people have been robbed off their gains. Likewise in India there is a cleaning spree, should you buy this distress?A: You correctly used the word look a little better. Now, are they better that is the question I ask myself whenever I look at the sector in my office and I actually get down to look at an State Bank of India (SBI), ICICI Bank or a Yes Bank or a Kotak Mahindra Bank balance sheet. It worries me that can I really trust some of the numbers, provisioning and those kind of things that are there amongst the various banks that I mentioned with no specific kind of casting and aspiration on any bank as such.So, therefore, I come back to the same conclusion that I need to look at the ones which will survive this onslaught, I need to look at the ones which would be recapitalsed, would be the bigger players always in the Indian context. So, therefore I would like to remain invested in them or keep adding them. How do I game them, when do I enter, when they are 10 percent lower, when they are 5 percent higher? It is difficult to game so in a bad day when the bank index is really getting hammered, I make that incremental small position and sit quietly; that is the only strategy I can follow and hope for the best.  _PAGEBREAK_Sonia: The next big trigger, I don't know if it is a big trigger but the next thing everyone is watching out for is the Budget. We haven't seen any pre-Budget rally up until now and yesterday we were having a conversation with a tax expert and he suggested that this time there is an expectation that service tax, excise duty will all go up as the country prepares itself for a move to goods and service tax (GST). That would of course come as a disappointment to the layman but what is your own expectation from the Budget and should we keep our hopes very low this time?A: Budget would be a non-event because to me I don't look at anything that is happening within the country. All my eyes, ears and my mind are across the universe at this point of time and on my white board trying to really game all the issues that are being thrown at us and how do they affect us in terms of Indian equities and Indian debt markets. Budget will be a policy statement which will come and go and everything doesn't have to begin and end in the Budget. The government can do so many things outside the Budget, the government does do them. So, it will be just another statement, it will be read through the galleries and this Budget in any case is going to be read through the galleries completely because it has to be socially inclusive so called Budget etc. So, therefore I would be surprised if the stock market would be disappointed from it. Therefore, I don't read too much into the Budget and whether a pre-Budget rally has taken place and a post-Budget rally would happen or not. I think I am agnostic to it.  Latha: Besides the banks which you said you would buy, strong ones which are sure will be capitalised during those distressed days. Where else would you look for value now? Any of the economy facing sectors, would you buy capital goods guys like Larsen & Toubro (L&T) or would you buy the consumption plays like Asian Paints, which way would your veer?A: That is a good question you asked because inward looking, economy oriented sectors is where I would still find some safety in the sense that one which are battered down, would get fresh orders flows, would get some cash flow problems sorted out, mainly the tier-II infrastructure plays which would get some order flows from the government once the investment cycle is aggressively taken on which the government is doing right now. I think some of the commodity plays have been beaten down beyond their realistic values whether it is in steel or otherwise so I would start looking at those from a long-term perspective. However, the caveat here being that the investor should not just jump in and buy and say you said steel and it is down 15 percent because I really can’t game whether if I buy steel today, it will be down another 20 percent. However, I know one thing for sure that some of the larger steel companies today in the private sector that are listed and traded would definitely be 50-100 percent higher from the current levels in the next year or two. China is not falling off the map; we must keep that in mind. China would also eventually handle its problems and it already is doing so very aggressively and so is Japan and rest of Europe as far as steel is concerned. So, therefore I would like look there, I would like at some of the consumption players and the strategy is entirely bottoms up and opportunistic. As soon as I find a company which I think is sub USD 100 million valuation or maybe USD 200 million valuation but has a reasonably good topline and a good chance of PAT turning around in the next year or two, that is where I would like to be.(Copy edited by Vaishali Karulkar, interview transcribed by Priyanka Deshpande and Vrushali Sawant)