Guess where smart money is moving from stocks: real estate!

A "great unwinding" on the part of high-net-worth individuals (HNIs) is taking place in Indian stocks, and smart money is moving out from equities to -- you read that right -- real estate. That is the view of Ajay Srivastava, CEO of Dimensions Consulting, who says that the recent decline in stocks has unnerved investors who were looking for quick gains.

"They've been sitting on losses, after having realized that the expectation of 20 percent returns this year is not happening," Srivastava told CNBC-TV18 in an interview, adding that a number of premium real estate projects in plush areas such as south Mumbai have attracted investor attention of late.

The Nifty has fallen off a peak of about 9,100 -- a loss of over 15 percent -- amid worries that a much-expected turnaround in corporate earnings has got protractedly delayed. On the other hand, there are some signals that after a prolonged slowdown, pockets of real estate across the country are witnessing a rebound in activity.

Further, Srivastava, known for his contrarian views, warned that if earnings don't turn around in the first quarter of next year, a much bigger exodus of capital from the stock market is not ruled out.Below is the verbatim transcript of Ajay Srivastava’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: What is the sense you are getting, are we headed for lower lows and therefore rallies should be used to sell out?A: Two things have happened in the last 10 days or so in what we have been seeing in the market. One is what has not been reported: the great high-networth individual (HNI) unwinding. By and large what we understand -- and we know about it -- is that lots of HNIs are unwinding their positions in equity markets and for a change, you might find this surprising, moving a lot of funds to the real estate market. So, that is the first sign of churn which is taking place. People are now fed up with the equities and said this is not going to give us return. At least the real estate is looking up, it will turnaround do something. So, the first big HNI unwinding has already started happening in the sector. If you look at Mumbai, if you look down south, people are moving a lot of money out from equities into real estate. So, this is the underlying market dynamics that although the institution money is still coming in the HNI money is one which is walking out of the door. Sonia: That is true because even in Mumbai in some of these premium real estate makers like the Oberoi’s the Godrej properties, there new projects are doing really well. So, that money has to come from somewhere, maybe it is coming from the equity market. However, what about the non-HNI retail community? They have been investing quite a bit in the mutual funds space. Are you noticing some kind of redemption or pulling out of the money?A: No, they are not pulling out money. They are looking like a bird in front of the flashlights coming towards them. So, they don’t know how to react at this point of time. I think this realisation will slowly dawn on them that listen the Eldorado of equity 20 percent return is not happening. The problem is what do you do? These people have invested money, are sitting on losses at the end of the day. So, the only option is to ride it out. So, they are not exiting it but we are certainly seeing that the enthusiasm is waning. Money is still coming in and trickles in and so on but enthusiasm is waning. However, I guess they can’t exit anymore because all of them are sitting on huge losses.So, retail is moving one way; HNI’s at least know how to cut positions or cut losses and move on to something better. The retail guy is stuck now -- for good or bad, whatever it is worth -- and now you are saying the revival will be happen may be next year in 2017. So he is there for the long haul now.Latha: These past 12 months have been a standout year for midcaps as an index and for some individual ones. Look at something like Jubilant Life Sciences, Chennai Petroleum Corporation, Panyam Cements, Dishman Pharmaceuticals these have seen some huge gains. Do you think you will see a very rapid deflation over there?A: It has already happened, if you look at the last one week or so the prices have started to come off quite a bit on any of the stocks that you have named and broadly speaking. I think it will go on; the process is going on today and is just beginning.The first quarter of next year we will see the real big ones which will come out because if the results come out in the first quarter are still as bad or mediocre as they are supposed to be or we expect them to be then you see a much bigger exodus of money out of the system – that is one. Number two as Sonia alluded to when people see the best deals off the table in real estate then the flock of the money starts to go there. The first money has moved to real estate. The big chunk will move behind this for smart money. So, our guess is that first quarter will be very challenging for most of the stocks unless they can produce spectacular results or the government comes away some more headline policy which changes the market dynamic all together.Sonia: For someone who is looking at the bigger picture or is in it for the long haul you are getting some of these stocks at really good levels. ICICI Bank at Rs 260, 30 percent lower than the start of the year. State Bank of India (SBI) at Rs 230, Tata Motors at sub Rs 400 at what point do you go out and say this is a good time to buy perhaps I should start nibbling in?A: Technically speaking you are saying the right things that these are available at pretty attractive levels. However, first of all the macro policy, if you look at what Reserve Bank of India (RBI) has done in long-term this is such a damaging policy has been done in this country that you will never be able to have a vibrant PSU banking sector again for the next few years. When you don’t report correctly you don’t act correctly. This RBI policies and non performing assets (NPA) we have discussed a number of past what is it doing in the end. It will have a bunch of NPA sitting on the books masquerading a standard asset. No matter what the RBI governor says affect of the policy is that. Number two is what your banks are doing is the big guys go away, the smaller companies which employee people which are really the backbone of the economy those are being targeted by the banks by selling houses, factories and shutting them down by the debts recovery tribunals (DRT) route etc. So, you have seen the bulwark of economy which is Small and medium enterprises (SMEs) sector which is the medium sector is being hit very badly by these banks. In that scenario now you extrapolate and say will the stocks do well? Perhaps some will do well. There will be a revival in the market. It will touch its bottom; it will go up. However, if in a longer-term scenario the yields are back to where they were pre-rate reduction. If you look at the RBI failure that rate reduction happened but the yield are back where they were. There is a failure and the RBI should come up and keenly say what is this NPA policy going to be and if banks are not lending this economy can’t move.Latha: The larger question is that what nuggets will you pick on the way down. Since you are speaking of some fairly debilitating falls in the first quarter of calendar 2016 where will you pick? Consumer stocks?A: Consumer stocks are always welcome to pick because of fact that they are most secured and because these people don’t carry debt, there is no leverage in the balance sheet. So the ability to manage through and operating margin reduction is much better, quite obviously. However, I keep saying to you, the theme is let this whole carnage happen. The bigger value will come from the leveraged stocks where the banks largesse is there for the people. On a normal basis, a company in a pretty environment can earn 18-20 percent. What is appreciation? However, if you want to double your money, treble your money you go to go somewhere seriously. Sonia: You were telling us that money is moving into real estate so would you buy any of these real estate stocks the good ones, the Oberoi Realty or the Godrej Properties of the world?A: No, I think the real trick is to buy real estate underlying product itself. The point is that the resale market is far more attractive than the primary market in the real estate and sector today. People are buying from the re-sellers in the market more than from the actual users so I don’t think real estate companies will gain so much but listed portfolios will gain a lot.