Ajay Srivastava of Dimensions Consulting said the mind is saying that the markets are overbought and valuations are overstretched, but the heart is saying buy a little more and hold on to positions. "This is because there are two important factors coming up, results and Budget. So, the heart is winning over the mind."
Excerpts from CNBC-TV18's exclusive interview with Ajay Srivastava.
How are you feeling about January and how this earnings season might actually pan out for the market?
We just discussed in the morning and I was saying that to my guys also that the head is all the time saying the market is overbought, the valuations look overstretched very difficult to find value any place. But the heart is still saying buy a little bit more because two great events are going to happen.
One is of course the announcement of the results but more importantly the budget and this is going to be a pretty good budget for everybody concerned given the fact that we have elections next year. So the heart is winning over, we are still buying stocks, holding stocks. The mind is saying overstretched, overbought.
Which part of the market is making you the most uncomfortable right now, is it the 20,000 plus tick that’s going on the Sensex, is it the way the midcaps have run up, or is this more about sectors in the way they have moved?
What’s making a little bit worried is what kind of leaders do we see in 2008. If you look at the charts, the big leaders in the chart we can’t find feeling it out whether Reliance can, difficult to find to lead the rally, the L&T’s of the world are kind of lying dormant and little bit of maybe fatigue is built in.
So, we are not been able to figure out the leadership is going to come from where and in terms of taking the markets up on the Index side. Sure there are a lot of opportunities maybe on the midcap side is on. But it is hard to believe that the whole market can just ride the midcap for a longer period without some of the mainline coming into play. That’s the discomfort we are not able to figure out, which of the guys are going to take the lead and take the market up.
Leading up to the Reliance Power IPO, how would you position yourself in stocks like Reliance Energy, NTPC, Tata Power, Neyveli et cetera?
If you are long there, it’s nice to stay long. If you have not been a part of the rally it is nice to add up to the IPO and put in them some of the money in the stocks, and maybe wise to go to the mutual funds putting in the power sector. There is no doubt that there is a power sector traction and I am not a great subscriber to the Rs 4 crore per megawatt valuation theory because putting a power project in the ground in India is lot more than just a replacement cost of Rs 4 crores per megawatt.
So, to that extent I think the traction is there, the demand is sitting huge on the system and with the relaxation of the pricing you are going to see a lot better participation of international investors also in this sector. So all in all good place to be, if you are not there keep buying some whenever the market corrects a little bit. But be there in the sector. You can’t, not be there.
Which of these oil and gas stocks makes the most sense now, HP-BP or ONGC-GAIL?
The way I would look at it is that of course that ONGC should make more sense today definitely and so should be GAIL because the very clearly indication that there will be a rate increase of the petrol prices, the subsidy burden should go down and oil is not coming down in a hurry.
So to that extent I think ONGC and GAIL would be a better bet compared to the distribution companies, even though on the shorter-term the movement maybe a little different, but longer-term that’s going to happen.
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What do you with technology now? The rupee is getting back closer to 39 then it ever was to 40 we have all been seeing the kind of data coming out from the US. Tactically where would that fit in on your portfolio?
It doesn’t fit at all. We have no exposure to the IT and we don’t think we need to put any money at this stage also, because quite simply the trigger is not there at the end of the day. You are looking at 10% kind of an increase not the word a while in the market which explodes 10-20% in a day on some other stocks.
So, to that extent, strategically in the portfolio sense IT doesn’t figure out today. Let’s see how the January results pan out. The last quarter should be very good results as we can see. But still not enough traction for us to move capital away from the buzzing sectors or moving markets into this technology on a long-term contra bet doesn’t make sense at all today to us.
What should one make of the Tata Motors international deal from a stock market perspective?
The thing from Tata Motors perspective of course it’s going to be a kind of a dilution on the earnings side and it is going to add more pressure to the balance sheet and to the performance of the stock in our view. It’s a good buy and it is very nice and proud to be an Indian to buy the two brands Jaguar and Land Rover. But for the stock it is not the best thing at this point of time, longer-term maybe who knows but for a shorter-term not a very good sign.
On a broader perspective yes, buys are a good positive for the nation. But stock specifically definitely it’s not a great positive.
What do you think is happening with the capital goods heavies though Larsen & Toubro, BHEL, ABB are they just resting do you think before they start seeing some interest?
Let’s look at last year, I think the market was really overbought in the sector whether it’s mutual funds, the retail investors, the infrastructure story was playing everyday and therefore literally everybody has kind of exhausted their component of the investment into infrastructure. To that extent it needs a breather, it needs to comeback to some sense in terms of valuations.
But very clearly a longer-term perspective we believe that these are the very safe stocks with a very clear return of 20-30% year-on-year for the next three-five years. They will go up in spurts and bounces and one fine morning you will see good results, and L&T goes up by 10%. So to that extent yes, it’s a breather, it is still a sector to be invested and if you have a capital there, if you are not there get in this sector sooner or later it will move. The story is there.
From here to the budget what kind of gains seem realistic even if market are at 20,500 if you have to play for the pre-budget rally what could that extent to in your eyes?
Clearly 1000 points up is on the cards on the broader index. But on the midcap and other side you could look at a return of even 20%. There will be a kind of some pronouncements to start to roll in from February first week onwards.
The only issue there is the interest rate reduction which people were expecting, that’s not going about to come very soon because the oil prices are going up and we have already seen a SBI increase in the deposit rate on the longer-term. So, that is the only dampener. But a 1000-point kind of a rally is definitely on the cards given that budget is on the way.
What do you like best right now amongst all these power stories between a CESC, Tata Power kind of stories some of these niche guys like PTC or Power Grid, or even some of the equipment suppliers?
We would like to go for the equipment suppliers at this point in time companies like Punj Lloyd who are longer-term players with a longer-term contracts, earning visibility riding on fundamental valuations are in just perception in the market. So I would tend to believe that that’s a space you’ve got to be in.
Disclosures:
It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.
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