Indian market is seriously undermining yuan fall: Dimensions

On sectoral picks, Srivastava says one must short banks at every recovery as 2016 is likely to be worse for all banking stocks as the market comes to terms with its asset worries.Below is the verbatim transcript of Ajay Srivastava's interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.Latha: Day of reckoning almost as it were for the bulls, what is the sense you are getting, this market has to still have one gut-wrenching sale before you will start buying?A: I think the reason in fact it has got worse than what we thought because we didn’t factor in late December the Chinese devaluation which will happen again and I don’t think many people appreciate how big the impact it is on Indian economy, the yuan devaluation. So in a manner of speaking, the expectation of further down and I think there will be one big cut which will happen -- I don’t know when it will happen but I think there is a serious amount of under-estimation of what yuan damage can do to Indian economy. That is one.Number two -- state of economy itself is a different kind of issue right now.Third of course is globally we are seeing a risk aversion in any case. The only thing is what you rightly said just was that the great Indian public has lot of faith stocks -- the midcaps have been holding up the market to an extent. This result season, which is less than a month away, will segregate that bit as well from winners and losers. So I think we are not looking at great positives but looking at the results to say at least in the midcap stories where do we hold on to our positions?Anuj: Bank Nifty has been a problem and you have been a strong bear on ICICI Bank, from current levels, do you think we will seek even lower levels for the Bank Nifty and for ICICI Bank?A: The stock market reaction comes straight from the government right now. We are in denial, there is a problem in the system now when the government is in denial, you don’t want to buy those markets, it is a business as usual that is one.So when the government says we are cushioned, nothing is going to happen to us, yuan devaluation is factored in, everything is done, you think there is a serious problem? Yes there is a serious problem.Coming to banking sector, I have been repeatedly saying that this restructuring plans approved by the Reserve Bank of India (RBI) will sound the deathnail of this banking industry or at least the banks which have their non-performing assets (NPAs). That is one.Number two -- the shareholders are going to penalise you. ICICI Bank one doesn’t even talk about it, leave it aside for a minute because it is full of skeletons which will keep coming out off and on. So one needs to focus upon and say very clearly that this banking industry will not have valid disclosures for the next 18-24 months thanks to the strategic debt restructuring (SDR) scheme, 5:25 scheme.When you don’t have disclosures, you don’t know the portfolio, why would you buy the stock. You sell them because obviously there is something serious to hide for the RBI to come up with the SDR scheme and that is where your position should be, shorting banks at every recovery.Having said that, I think nationalised banks are reaching a point of a trading window of an upside, which will happen sooner or later but as an investment window, we have been negative on them and 2016 will be worst for these stocks in my belief because the hidden agenda of NPAs being shrugged into the balancesheet between SDR category and 5:25 strategic restructuring infrastructure loans is going to come back to haunt them very soon.Latha: The outperformance of the midcaps is a little scary, what should you try and jettison even at a loss and what should you try and buy more of if at all or at least cling to in the next month or so?A: If you are on a capital goods space, you jettison. If by mistake you bought some stocks, you jettison them very clearly.Number two is -- of course you all know that the most played out story is aviation. If you are holding aviation, that is the darling of the government policy.I am sorry to say policy impacts the share price. If you look at aviation stocks, they are a function of government policies saying we want to encourage aviation stocks. They had the highest fall in turbine fuel compared to diesel and petrol giving them the benefit. SpiceJet got an exemption on open offer. So you have to align your shareholding in line with what the government is doing. Government is saying encourage airlines, so you buy airline stocks. Government is saying encourage the re-pricing of petroleum stocks, so you buy petroleum refining companies. You want to go in line with where the government preferences are because you cannot fight the trend at the end.So aviation very clearly, the refining companies, the marketing companies, small midcaps, very clearly you want to beat there which are on the Indian supply side, I don’t think there is a problem there at all. I think you would want to buy select stocks which are -- each of them could face a buyback situation like beer companies etc, which have got higher valuation and as share price drops, they will see buybacks coming out in the market.So I think there is a plethora of stocks even in midcap category you want to hold on to. The one category you want to jettison very clearly is midcap and the second one is take a risky strategy for return. I keep saying this is a market to take risk. Restructuring stories are going to give you returns, you have already seen Reliance Infra for instance climbed up from Rs 321 to Rs 580 or thereabouts if I am not wrong.So these are the stories you need to find in the market and have courage to buy it. There is no point in looking for safety in an environment as volatile as this. This is a market to take risk and get your returns. If you don’t like risks, don’t invest, be like me, I went for a 10 days holiday.Reema: You said that there will be another gut wrenching fall, how much more will it take the markets to the Nifty?A: I have no idea how big the fall is going to be. The market will fall 10 percent, is that a gut wrenching? I don’t know the answer to that. The gut wrenching will happen in India if the midcap falls. If the midcap starts to tumble, that will be gut wrenching. India is by and large not invested in these main 50 stocks and so I think to me the gut wrenching will be the midcap fall, not necessarily the index fall.Reema: What will trigger it, will it be the earnings season, will it be global in nature?A: Global is already playing out but earnings season and the budget is going to give a lot of looks as to where the equity market is going to go. Feeling here right now that results are going to be sub-optimal, the poor winter in north India is going to have its own big impact on consumer buying and spending etc. So that is going to be very big impact.Number three is that the Budget which is coming, will tax people much more than what they are thinking is going to happen. So I think a combination of poor results and budget, which is looking at taxing people would perhaps be the trigger to give it one more fall if not earlier.