Srivastava expects 10-12 percent earnings growth for FY18, given the pressure on GVA.
The market continued its run up in the beginning of 2018 also as the Nifty and Sensex touched fresh record highs on hopes of earnings and economic recovery from second half of FY18.
After Gujarat elections, it was expected that Indian equities may continue to rally in 2018, though there is an overhang of higher oil prices that impact economy, Ajay Srivastava, CEO of Dimensions Corporate Finance Services said in an interview to CNBC-TV18.
If one is having 2-3-year view, crossing general elections 2019, then one should be in a safe bet now, but on pure valuation metric, he does not think anyone can buy value pick at this time, he said.
He added that the dichotomy is that rest of world is rallied to a high with highest growth rate and lowest unemployment but India is a peculiar country which jumped to historic high with the lowest growth rate and possibly historic unemployment. This one should keep in mind, he advised.
He further advised that it is a steady run, just stay calm, stay peaceful, don't get overexcited and stick to quality names that would be fine strategy for 12-18 months, he said.
Srivastava expects 10-12 percent earnings growth for FY18, given the pressure on GVA.
Stocks and Sectors
He said there is an increased focus on consumer related stocks, infrastructure stocks and increased focus on stocks which have direct bearing from government contracts (defence, civil engineering, railways, infrastructure etc).
There are lot of small and midcap companies which have signed MoU with government, that is the good story to look at currently, he feels.
So wherever government contracts involved (whether it is railways, infrastructure, defence), he sees substantial amount of traction in those stocks. That is already reflected in two airport companies, he said.
As the government started to give contracts; these sectors are going to see huge run-up in the next 12-18 months, he believes.
"We believe that over next 3-5 years, we should see run-up of 5-6 bagger in most of these stocks; so we continue to hold, add on every correction and we believe we take out 5-bagger and won't sell before that," he said.
On resource companies like Nalco, NMDC etc, he further said no one can find clean balance sheet like these resource companies, they have zero debt on books and no big royalty payment to government. It is just dig and sell mineral resources business, which are phenomenal and available at negligible cost to investors.
Stocks which are hugely valued already sold out or avoid by us, he said.
"We sold out graphite story completely; pharma we don't believe it is great thing to own;, in PSU banks I am not still a buyer and most of the time we are short on it; and telecom also avoid," he explained.
Power stocks have been rallying. Lot of old power stations will go off over 3-5 years due to pollution norms. By and large, eventually no plants, demand-supply gap will come down and about 25-30 percent plants will phase down.
In today's meet, cabinet committee may consider allowing 100 percent FDI in single-brand retail via automatic route.
This is just started, he said, adding the GST rollout and demonetisation already cleared path for bigger retail companies. Hence, smaller companies will go off and big companies will gain over the time.
Competition is disappeared, which is helping bigger companies gain market share and run up to accentuate.
Below is the verbatim transcript of the interview.
Anuj: 2018 start has been similar to 2017, worry about valuations, crude but the market is just moving up and midcaps seeing quite a bit of frenzy. Your thoughts?
A: This was expected. Post the Gujarat elections, when it came out, this was expected that we will run into a good quality rally in 2018. Uncertainties are down to an extent, yes, there is an overhang of oil prices, which is going to impact its economy but the way people look at it today, the investors look at it today is that we are in for a two-year, three-year timeframe which is crossing the election period 2019. Then we should be in a safe bet.
On a pure valuation metrics, I don’t think anybody can claim to buy any stock at a value pick today by and large, I think it is all a hope. It is very funny that rest of the world has rallied to a high with the highest growth rate and the lowest unemployment. India is a peculiar country, which has gone to historic highs with the lowest growth rate and possibly historic unemployment. That is a dichotomy in which the capital market is working here at this point in time.
What is the difference? It is the liquidity inflow from the domestic market has been humongous. So you should keep that perspective when we start to invest today but I would say that the patience of the investors is something which is a new thing today which is adding fuel to the fire and you have to be very careful when you add fuel to the fire because it can combust very easily but I would say, it is a steady run now, just stay calm, stay peaceful, don’t get overexcited and I think you should stick to quality names and you will be fine for the next 12-18 months.
Latha: We are buying ahead of earnings or expectation of earnings growth. Is there anything that you would latch on to now in anticipation that earnings will come good?
A: We are not in a field, which say that the earnings will grow very dramatically in fact we are in a field that earnings will be closer to 10-12 percent at best given the cost pressures are going to be humongous. So you will see a pressure on the gross value added (GVA) by and large. Having said that, what we are seeing very clearly is there is an increased focus on consumer stocks at this point of time, increased focus on infrastructure stocks, increased focus on stocks which have a direct bearing from government contracts. if you look at defence, if you look at civil engineering, if you look at railways, there are a lot of smallcap and midcap companies which were sitting on MoUs etc with the government - those are now coming through. So that is a good story happening there.
So I think wherever we are seeing government contracts involved, whether it is infrastructure, defence, railways, we are seeing substantial amount of traction and that is true -- you have seen what happened at the airport company, they are also flying because two new airports are on the anvil which is a great story building up in the two airport companies.
So I think these are the stories which emanate out of government spending and are going to have a very clear impact.
Number two is, sooner or later, the wealth impact of this huge rally has to filter into the market. People have got enough money to spend, they will spend money because eventually they will sell some shares, feel the wealth impact coming through. So I think more than direct tax collection partly could be that as well, partly could be the wealth tax impact, partly could be the government has now started to give contracts, so these sectors are going to see huge run up in the next 12-18 months as we go down the path.
Sonia: The other space that you have spoken to us about a few months ago was this whole public sector undertaking (PSU) dividend themes, names like NMDC, Nalco, etc and the stocks have rallied a whole lot, have you laughed your way to the bank yet?
A: When the money comes to the bank, I should laugh but it has been a good – this I call safe and sound stocks, these are not very exciting, they are not 20 percent kind of guys but these are the guys you can safely go to bed and say these are the stocks which I have in my portfolio and I still believe that these companies are still less than 10-20 percent of the true valuation. We believe the next three-five years, we should see a run up of 5-7 baggers in most of these stocks. So we are continuing to hold, we are adding on every correction and we believe, we will take out of five bagger and one sell before that.
Sonia: When you talk about five baggers, NMDC is one stock that you have spoken about in the past, names like Nalco as well, all these resource companies basically, the run up is still more to go you think?
A: Of course, this run up has just started. If you look at the balance sheet, where do you find the resource companies – we have done research around the world -- which have zero debt on the balance sheet, it is never seen, never heard. Zero debt – they don’t have a big contract or royalty with the government. So it is not like they have to pay some humongous money to bail out. All they got to do is to dig and sell.
Now what better business model in life is to dig and sell and make money with no debt on the balance sheet?
Phenomenal resources at almost negligible cost is available to investors today.For full interview, watch accompanying video...