Bond portfolio is the one that has done well over last few days. Bonds diminished the pain in equities, Ajay Srivastava of Dimensions Consulting said adding that a 9-10 percent returns in bonds are expected in next 9 months.
It is time to pick stocks, but only those in which investors are willing to stay long-term, believes Ajay Srivastava of Dimensions Consulting.
Speaking to CNBC-Tv18, Srivastava said that there is enough time to buy in sectors like banking and consumer discretionary. No pullback has been seen so far in the market.
Bond portfolio is the one that has done well over last few days. Bonds diminished the pain in equities, he said, adding that a 9-10 percent returns in bonds are expected in next 9 months.
Srivastava further said that liquidity in the system will not be an issue over next 6-9 months. A rocky rise is expected with coming of the goods & services tax (GST) in next 12 months.
He said that is it better to wait another 2-3 weeks before reallocating in equities.
Below is the transcript of Ajay Srivastava’s interview to Anuj Singhal and Latha Venkatesh on CNBC-TV18.
Latha: We have seen now 4-5 days of continuous selling. What is your overall advice to clients? Is this a time to start stock picking?
A: It is a time to start picking. If you ask me, the stocks only where you are actually committed to stay there for a longer-term because this volatility, this problems are not going to disappear in the long run. Long run means it is not a 3-6 months, it could take a year or two years to dissipate itself. But I you are committed to buy the stock and hold it.
The problem will come, people who speculate in the stock expect a good V-turn rally that may not come around. So, if you are committed to buy and you have identified the stock in a certain sector, you buy it. But the point is that there is enough time to buy. Some of the consumer discretionary stocks, you do not have to buy it today. There is enough time for it to amble along and buy the stocks. There will be enough going along on the way.
Even in the banking sector, you will get time to buy these stocks. So, it is not necessary to go and buy it today, but if you are so committed to look at some promoter growth, some specific companies you had in mind or lots of people are into averaging out more at this point of time.
They could perhaps, start to cherry pick some of the high delta stocks and we have seen some of the volatile stocks like you have seen Delta Corp, what happened to it, you have seen edelweiss which had a wild run on the stock, that has gone down quite appreciably. So these are the kind of stocks which some comfort in the longer run so you can buy them. So I would say buy if your commitment is for long-term, do not speculate in this market because developments are happening daily basis, we do not know where it is ending up.
Anuj: There is one way of looking at these stocks in terms price fall. The other way is that maybe the price fall is in sync with the near-term earnings damage. So, from overall market point of view, do you get a sense that we have corrected enough for the market to rally or do you see more correction as the reality of maybe some downgrades start to settle in?
A: The market has a lot to thank you guys for keeping it afloat because you guys have done a tremendous job in trying to keep it going and I would even say that unfortunately for Indian media, it could even be like a US media’s Hillary moment because you guys called that this was inconsequential greatest move. People were not sensitised enough which is a good part of the stock market is people have assumed that it is a short-term development which has greater long-term benefit therefore less to stick on.
So I would say very clearly that yes, the shock is much bigger than what people are thinking, but the good part is that the way it has been sensitised across the board is that listen, carry on business as usual because this is going to play itself out in a couple of months and you will be back in action. May or may not happen, we do not know.
So, the play out is more of a sentimental factor. The market correction is more of a liquidity factor and so far, I have not seen any pull out from the markets of any individual, nobody is calling in for panicking to take out the money and number two is simultaneous with the equity, the bond yields have done a tremendous job to the portfolio. So, if you look at people’s portfolio that we have, the bond portfolios have done such a stupendous job that people have really forgotten the pain of the equity portfolio. And I say that it is a story of the bond, not the equity market this week.
Latha: And this is going to remain that way. The only problem is, there are so many imponderables for the bond market guy, especially in terms of currency in circulation, in terms of how long the deposits will stay, if the deposits are withdrawn, which they will be eventually when the withdrawal limits go away. When will we have normal banking practice? And if the withdrawal goes, will it be hectic withdrawal? If that withdrawal happens, then a lot of money will go away from the bond markets. Afterall it is idle money that is getting parked there. So, even in the bond market, these gains could be a bit fleeting, could be a matter of couple of months, could be longer. We really do not know. Any guesses on that?
A: It will be much longer for the simple reason that this has dealt a body blow to the growth impetus which means that the demand from the banking system would be kind of very subdued.
So, even if let us assume 75 percent of money goes out of the system and goes back to wherever it came from, I still think that in the next 6-9 months, we will see tremendous liquidity in the market because industrial consumer demand will be very little, working capital demand will fall through and then you are not going to see any major requirements of cash coming from the banking system. So, by natural cause of a slowdown, you will see the requirement of cash going down and therefore, banks will be surplus with this kind of money for the next year or so at least.
So, I would tend to believe that a big chunk of profits has already been taken up in the last 7-10 days, but gradually you will still see about, from now if you look at a 6-9 month time frame, you will still see about 9-10 percent return from the bond portfolio.
Anuj: Bharat Forge. Is it on your radar? We saw what happened after last quarter’s numbers.
A: Not anymore. I do not think we have got a holding in that neither do we cover that.
Anuj: The other interesting bit is how do you approach portfolios now? Banks and consumption did remarkably well. And of course, IT and pharmaceuticals took a bit of a beating. Is it time, at least over the near term to reverse some of these positions?
A: Pharmaceuticals, you have to be very selective because not all pharmaceuticals is together. There is a Contract Research and Manufacturing Services (CRAMS) section of pharmaceuticals which composes of Syngene, Suven kind of guys, there is Divi’s Lab which is a manufacturing development kind of a guy. Then there are these domestic pharma and global pharma which makes their own drugs.
So, pharmaceuticals itself is not a homogeneous bunch, so you have to approach three blocks differently. One thing which is coming on very clear is in the drugs bunch, we see Sun Pharmaceuticals to be the outperformer because the profitability is good, the borrowings have gone down, the cost savings of Ranbaxy are kicking in, it has got Taro which is giving it. So, all put together, if you look at the basket, you have an outperformer called Sun and all the other are laggards in the drugs segment is concerned.
In the CRAMS segment, you certainly have two candidates, Suven and Syngene which do reasonably well at all times and you have seen Syngene has not taken a beating of any kind in this fall in the market. Divi’s is kind of an outlier because there is not other comparable company.
It produces. It literally has got a 70-80 percent market share on the world for various APIs and intermediates and therefore it keeps churning out 40 percent growth. It is doing a large Capital expenditure (Capex) which is almost Rs 400 crore Capex which is about 25 percent of its gross asset base. So, that could become a good play in a year, year and a half time to come.
So yes, it is a good safe haven, but I do not think that is where the money will be made. The money will be made where the stocks are beaten down and that is where the maximum benefit is going to be there.
You want to be safe in this market, yes these stocks are good. Sun could be good, Syngene can keep you safe, Divis can keep you afloat. But that is not where the money is. Money is going to be there where the beaten down stocks start to come back a little bit over a period of time. When it happens, I do not know. My guess is, it could take even 6-9 months.
The reason I am saying is that post this dislocation, we are going to go to goods and services tax (GST) where the service tax is going to increase to 18. We know certainly. It is going to have a 20-25 percent jump in taxes. That is one more consumption blip coming into the market. Then the GST implementation could have all kind of series of issues and all.
And you cannot wish away the fact that the truck movement and the licensing octroi, was the biggest money making racket for every state. Now they are not going to give up all this money just because somebody introduced GST. So, let us be ready for a rocky ride for the next 12 months. And therefore, I say that safe is pharmaceuticals as a bet, but that is not where the money will be made.
Latha: So, you would sell off some of the portfolio because you would expect that there is going to be crunch time?
A: We were little bit luckier. We spoke to you as well as some other channel that we said hoping for a Trump victory keep your portfolio light, there will be enough time to buy. Demonetisation happened by accident. So, that is the sad part. But well, fortunately you are not there too much.
So portfolio wise we are almost at 70-75 percent bond and 20-25 percent equity, that is what our portfolio size is today. We will start to reallocate back to equities, not right now but at least we will take a 2-3 weeks to take a firm call when we get a grip of what is going to happen to this market because even look at banks as a segment, it may start to look attractive.
But we have to visualise the scenario where the interest rates are down to 6-8 percent then can they make the 3-4 percent profit, the margin that they make. And if they can't make that will the volume expansion be sufficient for them to keep the profitability going. That is a question which is going to affect this industry for a long time. NBFC the same story.
So, you will have some of the odd story like a Dr Lal Pathlabs, Advanced Enzymes etc which may still give you better returns. So, a general case to move big time to equity is too early to take a call right now.
Take a week or 10-15 days to first understand what is happening in the system and when it is going to come back to a proper demand cycle. The reason I am saying this is that somehow there is a confusion that all cash economy is black economy. That is a one line confusion with people is. Everybody who is dealing in cash is dealing in black. That is not the true case.
So, till we don't make the distinction, till we don't get back to the fact that there is a cash economy, replace the cash system, let it work and then only you will see a stock market coming back and if you see the income tax takes a very adversarial view with people who deposit cash, you imagine a situation where 2 crore Indians are fighting against income tax department. That is not a good scenario for consumption stories.
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First Published on Nov 18, 2016 03:59 pm