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Last Updated : Feb 06, 2018 06:36 PM IST | Source: CNBC-TV18

Will see choppiness, retraction & upside in market; start nibbling: Ajay Srivastava

In an interview with CNBC-TV18, Ajay Srivastava, CEO, Dimensions Corporate Finance Services, spoke about his reading of the market and his outlook.

CNBC TV18 @moneycontrolcom

In an interview with CNBC-TV18, Ajay Srivastava, CEO, Dimensions Corporate Finance Services, spoke about his reading of the market and his outlook.

Below is the verbatim transcript of the interview.

Prashant: Your sense, 400 points lower on the Nifty, what would you like to sort of make of things and where we are headed?

A: I think we are headed in choppy waters, that we all know about it. However, I think the point really is, the question you are asking me, should you sell, buy, or hold is what is really the decision investors are making. I think the situation is emerging in a manner that at least if you are looking at lots of mouthwatering midcaps, hold off for a while because you may find mutual fund redemptions to become a big burden on this market in a very short order because the exit of midcaps is very limited, and therefore you will find mutual funds could create mayhem in the market if redemptions continue because people are not able to get enough out of the stocks, so, they might redeem the mutual funds, one.

Two is, if you love the stocks and very good stories, I don’t see any reason why you should not add up. These things will happen, we will see choppiness, we will see retraction of the market, and we will see the upside as well. So I don’t think we should fear buying what we like most, lots of it has good prices now. So start nibbling, I do not see an issue.

The third issue is, I think we have an FII issue, let it play out for a day or two and then start buying because very clearly the selling will come from overseas even if in small drifts and dabs and with no buyer available in sight, you will see still more correction in largecaps. So, wait a day or two, let the US Dow settle down, and then you start to buy into it. I think it is still going to give you a very good value buy in the market in the next three to five days as things settle down.

Ekta: We have seen declines before for the markets and it is all a part of life, but what is different about this correction vis-à-vis what we have probably seen in the past?

A: Let us talk of India, if it becomes global then it becomes confused. In India what is different now is, as you are talking to more and more investors is, they are not seeing great optimism in the return of the old price in stocks. I think they are seeing uncertainty, they are seeing choppiness, they are seeing risk in the market, and they want to capture the returns whatever they have left and try to get out at least of the small and midcap. I think that is what is different compared to last three years where every opportunity was a buy.

For the first time we are selling, people are saying let us book some profits, we have an elections coming up which is uncertainty, you saw the fiscal deficit playing out, interest rate will rise, maybe not in this policy, in the next policy it has to rise. So, why take a chance in this market. So difference is I think you will find lots of people redeeming out of mutual fund of small and midcap rather than buying into the correction. I think that is the one big difference we see for India at least in the immediate context.

Prashant: You began by saying redemptions, I know that mutual funds are still getting inflows. The Nifty is down already 650-700 points or so, but there are still inflows in the mutual funds, it is not as if inflows have stopped. You are talking of redemptions, now that is another level, and if that were to happen, that would create a fair bit of mayhem once again. Are you suggesting we are already at that point, or that time is some time away?

A: I think we are already at the point. I think give it a day or two more of corrections and inflows, SIPs have a – all investor inertia, SIPs keep coming, the bank keeps debiting its auto debits and so on and so forth. Initial rush is to buy into the market hoping that you will catch a bottom. However, as a day or two more lapses, as people start to really look at the fact of what is happening to small and midcaps, you will find that there will be some amount of serious redemption if not already happening yesterday and today, will happen. Remember this large scale redemption have a three-day value date. So it is not the selling has to be done immediately, money comes into account three days later. So that is a little factor that people may have waited to say today is gone down, the NAV is so much, should I do it tomorrow, should I do it day after, and that is the kind of stuff which is playing out right now.

Some people redeemed early, some people will redeem in next day or two, but I am 100 percent sure that small and midcap where lots of people are stuck with positions of real equity in the market, unable to get out with good price, will find sucker in taking this money out of the market. I do not see any fund manager today recommending to investors that put the money in smallcap and midcap mutual fund. I am scanning the horizon and saying is anybody saying, if anybody is saying let us go to largecap.

Ekta: So you expect the money to be re-routed into largecaps and not a different asset class?

A: I think it will be 50-50. I think 50 percent will be taken out by people in cash, 50 or maybe less than 50 percent will go towards largecap because we do not understand enough largecaps as retail investors by and large and FIIs are selling. So there is no buyer of this whole midcap story at this point of time. Yes, there are pockets of excellent midcap, nobody is saying do not buy the gaming companies, nobody is buying the larger NBFCs, nobody is saying buy the airport companies, etc. they will all fall flat, nobody is saying that, but whole amount of froth in the system is getting re-rated and that is a healthy sign, but it has come with loss – including chemical company which were quoting at 6-7 times the book value which never happened. They are all correcting correctly. So I think you will see a non-returnable phenomena in share price in lots of midcap and smallcaps.

Prashant: When you say that redemptions will start then all this sort of talk that there is mature equity class now which will systematically invest in market, if redemptions have to start after two or three days of fall, then I guess all that was just a lot of talk.

A: There is a thin line between being mature and being foolish. So I do not know which one one would like to be called.

Prashant: Your view was that redemptions will start. If I were to ask you that question on a different context, you are addressing a fair bit of retail investors, what would you tell them, should they redeem?

A: We have redeemed quite a bit and I will continue to say that at least 50-60 percent of the small, midcaps – you know in any case to share with you, in the last three to six months, the composition of most portfolios have become 60:40, 60 percent largecap and 40 percent was midcap and smallcap. So it was already way towards that, but in the last three days we are seeing more and more, we are advising you pair your current things down because this is a murky environment where you do not want to take your investors into. You want to take them where you know something is going to happen. Here, uncertainty, who is the buyer of these stocks, what is going to happen to the shares, lofty valuations, interest rate increase on the horizon, why do you want to take a chance with customers money?
First Published on Feb 6, 2018 06:21 pm
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