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Last Updated : Dec 14, 2016 06:20 PM IST | Source: CNBC-TV18

It's a sell-on-rally market; Q4 to be worse than Q3: Dimensions

Speaking to CNBC-TV18 Ajay Srivastava, CEO of Dimensions Corporate Finance Services, said his advice to investors would be to sell on rallies and book profits.


Speaking to CNBC-TV18 Ajay Srivastava, CEO of Dimensions Corporate Finance Services, said his advice to investors would be to sell on rallies and book profits.


He believes the third quarter of this fiscal year isn’t going to be bad. But the following quarter – Q4 – will get worse. Demand compression will be felt most acutely in the concluding quarter, he said. He sees no big dips in this current quarter as a combination of prepurchases and built-up momentum are safeguards against a major fall.


He is bullish on Power Grid and oil marketing companies. Companies with strong capex is the way forward today, he said. He laid emphasis on companies operating in CRAMS (Contract Research And Manufacturing Services).

Talking about Bajaj Finance, he aid market volume traction has to come back into this company. “Our view is NBFCs are going to feel the pinch from banks cutting rates.”

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We are picking companies which have a strong capex in the pipeline. He believes the pain from cash crunch will last a little longer. Re-hoarding of money will prove to be a major hurdle to the free flow of cash once again, he contended.

He believes Nifty's 7900 will be taken out soon.

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

Anuj: So is the risk to reward favouring you now to go out and buy or is this a market which could see more decline maybe in first quarter of 2017?

A: This market is vacillating in our view between perhaps a lot of hope and faith on one side and a sobering reality on the other side. So, depending on which side of the bed you get up from, you react to that market in that fashion. Because you know the reality is not that very flattering. You also know the fact that there is a huge amount of people who put -- retail money has gone into the system today, which is literally egging it along. You have heard the old phrase faith can move mountains, I think faith is moving this mountain called Sensex really speaking because there is nothing else that is driving it but pure faith.

So, when you drive on faith you only have to ensure that in a game of musical chairs you shouldn't be the guy left standing when the music stops, you need to grab a chair. So, our only advice to customers is that you sell on rallies, that is very important. Book profits, get money into the bank. This is not a one way street where you invest now and keep it for three years or five years and you make substantial returns and this year has borne out the fact that people who book profit regularly has made much better money than people who stood with their portfolios.

Latha: But is the sense you are getting when you look at the companies you track very closely and others that 3Q is going to be very bad and if yes for which ones?

A: All around people are fearing that more than even Q3, Q4 is going to get worse because the reason being that Q3 -- the one the momentum was with the market in October in terms of pure retail sales, pure off take, whether it is cement, whether it is housing industry, everybody, whether it is home loans, everybody's momentum was fairly charged up till the demonetisation dates. If you look at what is happening it was wonderfully well, the trajectory was very nicely moving upwards.

The sudden fall will start impacting in December onwards. Transactions in pipelines get finished so on and so forth. The fear is now not going to be this quarter. This quarter by and large people are saying we will manage through, lot of preponement of purchases has taken place, liquor companies seem to be have done extremely well in this period because with whatever money people had they went and bought liquor or whatever it is and we are finding out from the market. So, it is not going to be so bad in this quarter but it is going to get worse in the next quarter because the demand compression will start to come into the system only in the next quarter. This quarter with October and up to November 15 momentum and pre-purchase which has been done whether it is jewellery, car, whatever you name it, has been a huge market for these notes and people have done well in sales till about November 30. So, you are not going to see very big dips in this quarter.

Sonia: Any place to hide in this market? Any of the export oriented sectors like technology is doing well, your favourite pharma stocks, some of them have bounced back. Some auto ancillaries are doing well.

A: We have come up to the conclusion that right now what we are hiding up, I don't know if we are hiding, we are up front there, increasing our positions day by day in stocks where there is limited impact of political and economic retail level development. You have named few of them for instance. Let us say Power Grid, it has got a Rs 33,000 crore capital expenditure (capex) in the pipeline, which will come through in the next two years or three years. It has run up quite a bit but it has still got a decent thing.

Oil marketing companies have run up quite a bit but have a decent thing to do and nothing to do with retail sales, people have to go buy petrol and if petrol prices go up by Rs 6, their margins also go up by that extent. So, you are seeing the capital driven companies which are in a monopoly markets -- Power Grid is monopoly, Petronet LNG is a monopoly, Indian Oil Corporation Limited (IOC), Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL) are monopoly companies. Monopoly companies with strong capex running behind them are the way to go today. Otherwise, in other companies where there is no capex you are buying into more and more expensive valuations of the same cash flows. That is what you are doing.

So, our view has been that let us then shift lot of portfolio on to these kind of companies in these period. Pharma I have two or three companies which we buy. One had unfortunate fire but every dip is a buying opportunity in such kind of companies. We are not buying mainline pharma companies. Maybe our view will change on Sun Pharma some time or the other but apart from that the Contract Research And Manufacturing Services (CRAMS) companies are the place to be rather than pure pharma play.

Anuj: What about companies like Bajaj Finance which till six months back everyone was willing to pay about seven times to eight times price to book. It has corrected 30 percent now.

A: It is a good company. People have booked out of profit, we have also. We don't have a position there anymore but you need to wait a while because the market volume traction needs to come back to this company. There is huge liquidity in the system but there is no demand. So, what we are going to see now is rate cutting. Heavy rate cutting to get the limited volumes in the market and nationalised bank will be at the front end of it to cut rates. So, our view is the Non-Banking Financial Companies (NBFCs) are going to feel the first pressure from nationalised banks on rate cutting. You saw the credit demand numbers today, which came out, almost Rs 1 lakh crore fall in the domestic credit. Now that is going to drive this market more and more into grabbing whatever little pie it is. The pie has shrunk, let us be honest. And I don't think anybody is saying the pie will come back to normal in the next 6-9 months. So, on a shrunken pie excess liquidity you will have a rate cut of a kind we have not seen and the competition in the market.

So, these companies will face rough weather for the next 6-9 months. So, wait a while. There is no hurry because let the volumes come through, let them restore the margins. Even if volumes come through the margins will be hit quite badly.

Latha: There will be a bunch of rate cuts and with each passing day the cash crunch will be less biting than it was the week before or the day before. Therefore as the problem probably see some receding, what will you pick?

A: As I said we are picking up companies, which already have a strong capex in their pipeline. The number two are companies which are not linked to by and large day to day -- and I have a difference of opinion with you that day by day things will become better.

Cash crunch getting better is not logical event that is going to happen because the scarcity element has made people scared to spend the cash that they get from the bank. I have a feeling that the velocity of this actual cash is now dropping down faster and faster, which is accentuating the cash crunch in the market. I don't see people even after they get Rs 24,000 to go out and spend this money so that the next guy gets some money. There will be re-hoarding back of cash in the first flush in Q1 of the next year.

So, my guess is that the cash crunch will ease out not before the next 90 to 120 days till the hoarding impact is also over because nobody has cash in their homes today. Everybody wants to now keep cash in homes today. So, the hoarding impact is going to impact us quite badly.

Coming back to the themes that we are looking for -- One we are looking is what substitutes metal in the next year's list of things. Metals have done their bit, they have rallied quite a bit. We need to find the next little stories.

Sonia: Are we staring at just a time correction or are we looking at price correction which could take out the 2016 low of 7,900 as well?

A: 7,900 will be taken and will be taken quite fast in our view. I don't think it will even be maybe January 10-15 it will be taken out in our view because that is where most realisations will start to dawn that next quarter is also not going to be any happier than the previous quarter.

So, in terms of pure correction this is going to happen. But I will still say to investors don't look at this market because if you look at this market, it is very depressing. Over the year if I see the yield on Sensex is seven percent or thereabout even today, which is half or less than half of the Dow Jones yield. Now we thought India was the only spot in the world and suddenly Dow Jones has beaten us handsomely in terms of return. Let us focus on building clean portfolios, clear portfolios for next year and keep 25 percent for adventures that you like to have and excitement that you need to create. So, don't worry about corrections. Corrections will come.

The need is have you got the right portfolio, that is one and every rally have you booked your profits and put money in the bank. That will dictate the next year's trend. Look at fixed capital formation - not looking good, bank credit - not looking good, agriculture - so so, economy - sobering realities, the lines, the cues, the productivity, the unemployment and so on and so forth. People said tax cut will be a panacea. What will tax cut do? Billions of Indians don't even pay tax. So to cut tax for them have no meaning at all. So, you are looking at a scenario where the metrics don't support a rally, hope does and therefore when hope overwhelms book your profit and look at the metrics.

First Published on Dec 14, 2016 09:50 am
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