Right way is to build up midcap, smallcaps and let economic returns flow: Ajay Srivastava

Even with a huge mandate, government has no choice but to spend big on social security, says Srivastava.

Dramatic change in the way you look at the system is a key order for this economy to come back into a chugging mode, said Ajay Srivastava, CEO, Dimensions Corporate Finance Services, in an interview with ETNOW.

Edited excerpts:

Are you a buyer today?
Of course, not. Well, to be honest, we did buy a little bit in the morning but we are not a big buyer in this kind of a market and with God’s grace, we were not caught on the wrong side. But the key point is very simple; the big event is over or at least seems to be over and the only now important thing to see is what will change in the economic and financial policies of the government because the same government was in power in the past with a majority. The same is going to be in the majority. So, us investors need to figure it out what is going to change and how fast it is going to change in the backdrop that India is seeing one of the worst droughts. The government focus has to be there, a lot of money has to go there. So, when will the chance of the corporate India come, when will the GST reductions come, when will the RBI open the taps?

All these are the questions on the table. For the time being, there is a stable government in the country which is good for any kind of an economy by and large, not only India. So from a stock market perspective, a stable government is a good government and therefore the question is what changes now?

If you think that markets will be not higher but much higher from here, then why not buy for that 15%? So what if you have missed today’s 5%?
The backdrop is very simple. Most of us are going into this thing in a pretty long position at this point of time. You are talking of deploying the balance 20-25% of cash in the portfolio and you are not in sectors such as autos. We are not invested at all in autos. We have got several sectors that we are not invested in and when the time is ripe, we should come in. Surely you are right 5-10% is all there is to play for in terms of a downside but that is not the way we look at it.

We need a firm change in the trajectory of the market, that is one. Number two is, it is all about churn of the portfolio. The same guys will not keep singing all over the time except HDFC Bank does for years and years put together. The real story is going to come when the rest of the country and the rest of the index and the rest of the companies are going to come into the fray as that will show the true depth of the system and that is why you keep 20-25% cash on the sideline to deploy that.

Today is not the ideal day to deploy it because as I said, we need to see a firm change in direction and given the economic situation and rural distress, let us not forget assembly elections down the corner in West Bengal, Maharashtra etc. Lots of energies might go there rather than coming this way. So, the verdict is not clear for the stock market. For the time being let us rejoice that there is a government which is stable and that there is a continuity of policy.

Now whether it translates into stock market gains is something which we are debating ourselves. This is why we are holding our hand and saying let us go deep dive into this one and say 15-20% upside. You have two very painful quarters ahead and let us be mindful of that and the whole market today. That is the worrying part. It is resting on liquidity, it is not resting on fundamentals. It is all about FIIs coming in and taking the market to 11800. The FIIs walked out and the market went to 11100. So when you are playing a game for international liquidity and not fundamentals, you are really playing a timing game. That is not our forte, our forte is more fundamental than timing on cash flows.

The broader message based on manifesto is that government will have to focus on things like rural stress, spending and social security and farm distress. These are topics which may not make an ordinary capitalist or a market watcher or an economy commentator very happy...

Having said that, I think that is required. We have to make a sacrifice at the end of the day and that is what I said, our views are tempered because the government’s priorities are going to be very quite different from the one that we think it should be. The right way to go it is to build up the midcap, the smallcap and let the economic returns flow.

I think they will go for a direction intervention as part of the manifesto. The PM Arogya Yojana is already there; for Mudra loans, we are staring at Rs 1 lakh crore writeoff already on the books of the banks. That is why I said what is going to change? Is it going to change that we go back to supporting our smallcap, midcap industrial segments and then we get the economy to revive and therefore create employment? Or, is the direct intervention which is already announced going to be the preponderant way? This is going to move forward and that is where the caution comes in.

If that is what the priority is going to be, then the tension towards what is required on the side will be much less and we got a whole agenda. Not only government, the Reserve Bank has to come up with a new NPA circular. We have all been sanguine about PSU banks, saying they are out of the woods but if the double whammy hits them on the power play producers and UDAY loans which are staring in the face of state governments which cannot be serviced any longer, then you got a different ball game out there. So RBI circular on NPAs is going to play a key issue.

What happens to NBFCs? The whole working capital cycle today of the country is at a standstill because loan against properties (LAP) was the way people used to fund businesses. Now when that stops and people want the money back, forget even getting new money, the side engines are starting to choke now. These need to be opened up. That is why I said a dramatic change in the way you look at the system is a key order for this economy to come back into a chugging mode; otherwise direct intervention can give only so much benefit.

I do not think direct dimensional will benefit Dabur Dant manjan or whatever it is because that is not what people are going to use. For that drought area, money is going to be used for water, food grains etc. etc. The verdict is clear. Let us see what the new policies are, let us see the RBI’s new NPA policy and this whole thing about interest rate reduction that is not happening in a hurry because the transmission of interest rate has not happened in the last 50 bps not even 5 bps, really speaking.

There is no reason to believe that between the state government and the UDAY loans, the Government of India borrowing put together even after Rs 2-3 lakh crore transfer from reserves, you will see a heavily crowded borrowing calendar of the Government of India. Even with this kind of mandate, they have no choice but to spend big on social security. It is a compulsion and therefore I do not see interest rates falling.

The only thing I see is RBI opening serious taps, loosening of controls on NBFCs. Sometimes being virtuous beyond a point becomes counterproductive. We need to let go of certain things and let the economy move on. Typically you get lots of calls in the morning. You do not get many calls when people are waiting and seeing what is going to happen.




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