Markets near all-time highs but where is the return? PFs, debt given better returns: Ajay Srivastava

"In this market, I do not think people have made a lot of money because they have stuck to the old concept of saying let us hold the stocks, let us hold the index, let us see where the mutual fund goes and what has happened ultimately is extremely poor returns," says Ajay Srivastava, CEO, Dimensions Corporate Finance Services.


We are almost at a new all-time high on the Nifty. The Bank Nifty hit a new all-time high but it does not feel that we are at an all-time high. Ask anybody and they would say that though they have not lost money, they have not made money either. The old feeling of celebration which one normally sees is missing this time.
Over longer periods -- one year, two years – the returns have been pathetic. So yes, volatility has been the name of the game in the market but if you look at one -year return on Nifty, it is barely 1% at this point of time. So euphoria will come when people make lots of money.

In this market, I do not think people have made a lot of money because they have stuck to the old concept of saying let us hold the stocks, let us hold the index, let us see where the mutual fund goes and what has happened ultimately is extremely poor returns.

In the highest interest rate scenario, equity returns are 1% at this point of time. The exuberance comes when one makes good money over a period. In the last one- to two-years time frame or maybe even three years except for a couple of midcap funds, by and large people have not been able to make a good amount of money and what is bothering people is that the market could be high but where is the return?

But it is a good thing because people are focussing and saying sure they could have made 10% return on his stock or 20% but have I made it over three years as that means the returns are less than debt. The irony is Indian equity markets have given less than debt returns now for a number of years. No matter how much noise you make, the fact is PF has given post tax better returns than most equity markets of India.

But it is a very easy solution. One just has to watch Ajay Srivastava on ET NOW and they will get ideas to make better returns!
But our solutions are very unexciting. I am not saying buy it but I am just sharing with you that when Powergrid Infra came out with an IPO, we put in lots of money there. Those are very unexciting stories but at the end of one-and-a-half, two years, they have good returns. That tells us to balance our returns and as I keep saying, if you want excitement, go skydiving or snorkeling or climb Mount Everest. Market is not a place to find excitement… this is a place to get security for your family, to enjoy returns.

But one cannot deny that. At least over the last one month, if we want excitement, PSU banks have been the space to go. Some of these stocks have flown high. You do not advise investors to buy into PSU stocks and only to be in the stocks for the dividend yield correct but are you having a change of heart seeing the way these stocks have performed?
Not at all. The beauty of an old life is we have experiences to tell people. History will repeat itself; these stocks have done magical wonders in short periods on a number of occasions and then reality hits. It is a PSU enterprise at the end of the day. I do not bank with them but maybe some people do bank with them and that is why they get the deposit franchise but that franchise is dwindling at the end of the day. They do not get the best of the credits, they do not get the best of their retail credit period.

So purely on franchise, would you buy a PSU stock? The OMC stocks are decimated completely. Yes sure it is an excitement, sure the returns are almost 30% in a year if I am not wrong on the PSU index, but these stocks are meant to be traded and that is what the story is. They are not long-term stocks. One can be excited with the story but it will end in misery. If you hold on long enough, you will lose money. I can promise you this much.

The story ends in misery as well when it comes to new-age tech companies. Are you sticking your neck out here?
No luckily I kept my neck on my shoulders and said that the new-age tech stock must have good quality business models in the sense that they serve a very useful purpose but at what cost? I was reading about Zepto this morning. Please do not take offence. Zepto is the name I just read it. It has a turnover of Rs 120 crore, losses of Rs 295 crore. You have to be a genius to make a turnover of Rs 120 crore and lose nearly Rs 300 crores and then people giving another Rs 500 crores to burn. It has been the greatest fools theory where the employees have been the biggest beneficiaries; the PE funds driven by zero interest rate money, have been the biggest beneficiary.

If unfortunately you are buying these stories at this price, you already paid a high price and it is not over. It is going to go down and go down significantly more. So if you are catching a falling knife, good luck to you. Number two your threshold return is higher than Aberdeen which bought Nykaa shares.

Aberdeen’s rate of return is pathetic at this point of time. They are happy with 5%, 6%, 7%, 8%. Are you happy with 8% return? Answer is no. Therefore you do not follow the crowd and say institutions are buying and so I will also buy it now. Your threshold is very different, much higher. If you can get 8-9%, 9% return or 10% guaranteed by the government, why would you want to risk it?

So the new-age tech concept is good but valuations are still crazy and we are seeing the rush is on. Smart people are selling them off. It is going to end and it is going to end pretty badly for lots of investors including institutional investors who even now are buying at this price. Do not catch a falling knife even if the return goes up. But it is a big falling knife and it is still a long way to go.

I also understand that you are staying away from cement as well as specialty chemicals? Is that an absolute no go for you?
It is not no go on specialty chemicals because they are good pockets of returns. The problem is the valuation. Even today, the specialty chemicals are at a valuation of 40 plus PE with almost zero growth rate. Now if you are an investor of any kind, why would you buy a stock which is not growing at a 40 PE at this point of time?

In terms of their positioning in the global markets fantastic, in terms of, business models, they are extremely good with competent management. But am I buying at the right price? That is the question which keeps bothering us and that is why it is a no-go right now, I am not buying stocks of chemical company no matter how great the chemical is at a PE of 40 when the growth rate is zero and that is a conundrum.

I will go back and buy again when the PEs become more reasonable, they have a very good long-term business model. It is not a short-term business model but if you bid up the price in this fashion, how do you make a return on your money? That is the bother. It is a valuation issue more than a company issue at this point of time.