ETMarkets.com“Companies which are responding globally with new environment technologies will be the bigger winners and that will come on the manufacturing side is the pharma manufacturing,” says Ajay Srivastava, CEO, Dimensions Corporate
It looks like Diwali has come one week early, it is like Dhanteras for the bulls today.
I think it is a relief more than anything if you ask me. I do not think anybody believes in the rally. I do not think anybody has an answer to what transpired yesterday from 2% down to 2% up, actually a 5% gap. So let us be honest; we do not know why it happened and it is a good market to open up to but I do not know whether there are now opportunities for people who want to get in at this point of time.
However, one thing has become very clear that we need to focus on the winners in the market. Very clearly, Infosys after yesterday’s results has become the key winner in the IT space and there is no point rejoicing in the rally if you are Wipro shareholder or holding another midcap IT company barring MindTree. This is the kind of scenario which tells us that you got to stick with the big ticket winners in the market and expect that the share price crash laggards will catch up. But I think it is going to be a very flawed strategy in this market because typically the concept is it has fallen 40% and so I will get a 20% return.
That strategy is now clearly getting out of the market. There is a reason why stocks have fallen and you need to stay out of it for long periods of time and focus on the winners, even though potential returns are fewer.
I think that is where people now who are listening today are looking at their portfolios and say do I have laggards and do I need to get out of the laggards? It does not matter if today the market is up by 2% in the laggard because today you have liquidity particularly in midcap space, tomorrow you may not have that. So the moral is enjoy the ride but get out of the slow coaches because they are going to railroad your portfolio.
Which is the Vande Bharat stock in your portfolio and which is a slow coach?
Two days ago, Vande Bharat got into a mishap…
That may happen any time but the fact that it is back on the track. Any good stock may flip-flop for the next couple of days.
India is a beautiful country because the largest stocks have lower risks and higher returns. Look across at any industry; look at commodities, the number one player is holding firm; look at steel, number one player holding firm. If you look at the automobile space, you got the top guy in India. He is doing the best among all. So our bias is still in favour of the larger names compared to the smallcap names at this point of time and the mishaps are going to happen. I think it is going to happen in the smallcap consumer space.
The smallcap engineering space is going to be a serious problem in the market. Smallcap exporters to the US will have a series of problems. In the largecap space, people like Reliance which is into very low EBITDA margin businesses like garments and retail, etc with 8% EBITDA. One can seriously see a problem coming up in terms of their ability to continue to give value to shareholders.
High value added companies will gain in this market and will continue to move forward but everything can fall but the fact is the guy who can come out of it is the big guy, the better guy than the guy who is the laggard. Cotton spinning is again the same story. A lot of cotton companies have fallen by the wayside; only one or two will survive and I think the concentration of economic power in the country is now very clearly getting dominated by the bigger players and you need to be with them for your portfolio.
Given that everyone is talking about this huge manufacturing renaissance, how are you looking to play that space, is there a tilt within say defensives or look at the capex theme, how are you looking to play that space?
The capex will start with the commodity supplier who is going to supply aluminium, steel, copper, zinc and lead etc. There is a monopoly of maybe a single company in some products and maybe two, three companies in two other products at the end of the day.
That play will start if we really believe the capex story has to start from commodities and then it will move to suppliers like, I am not recommending a name but giving an example like CG Power, Siemens.
They will be the beneficiaries of what will transpire first for the commodities and then it will be those companies which will come into the play at that point of time. I think it is a very good start. A very small set of five, six companies, which are the key infrastructure and engineering players in this country. It is not a big market or a big segment and there are about five or six companies. That is the way it goes for commodities and then it is the engineering and machinery suppliers which are supplying the latest technology.
My view is yes, the capex binge will not happen because PLI will happen. We have already seen what is happening on the front. It will happen because people will need to change their setups in environment norms. So companies which are responding globally with new environment technologies will be the bigger winners and that will come on the manufacturing side is the pharma manufacturing.
It has done very badly in the last couple of years but I think you should see a pickup of that, the basic thesis is that manufacturing will first come in engineering and pharma in this country before all other things in spite of the PLI. Those two industries will remain the bigger focus of ours compared to all others and we have seen what happened to the assembly industry. Some of the stocks are listed and the EBITDA margins are 4-5% and thereabouts. So PLI is going to solve it. I think what will solve this problem is the replacement of capex to address the environment norms.
Since you are talking about the cash generating companies and I know you just hinted at the IT stocks but given the underperformance we have seen this year, does it make a good bet for the long term or will there be better entry opportunities? Also where would you park your money if you had to take a bet?
I have said earlier that the day I stop active investing, I will park quite a bit of my money. Already I have parked a lot of my money in things like transmission REITs. The day I do it, I will put a lot of my money in IT stocks because at the end of the day, over a period of 5 to 10 years, they are giving returns to their shareholders in terms of money backed in the bank at the end of the day.
On top of that they have a running franchise of a business which is not going anywhere in the decade or two. Technology may change but these are the change agents that even assured the market. It is still America and it has not gone to the rest of the world and that will happen eventually. It will come to India as well and there are three players in the market – Accenture, Infosys, and TCS.
If you put together three large global players in the market, two of them are Indian players; what better setup do you want? If you are a more active investor perhaps you can get a better bang for your buck in other stocks. If you are a passive investor and want to retire with a good life, this is the best place to be. If the stock falls, that is the time you add up to good names, you do not get out of the good names. India’s Wal-Mart story will keep giving you returns year on year and you can sleep peacefully, go for your holidays peacefully. Anybody who wants passive investing, this is the place to park your money.
Warren Buffett made his big investment in Apple after he turned 80. Late Rakesh Jhunjhunwala took a large leverage in his portfolio when he was 60 plus. What is all this about not investing and retirement age?
I do not know Warren Buffett’s wife or what she did to him, but I have a little more active wife who says I need more of your time now at least. But having said that, the moral of the story is if you want peace of mind, it is the right place to be. You want to actively go for the midcap, smallcaps, take some hits on your chin and wake up every morning looking at the newspaper. You have two choices of investment thesis at this point of time. I belong to the other thesis of risk is less.
It is a day after karwachauth is that the reason why that you are mentioning retirement?
I am telling you, you should be a mind reader. You guys should be mind reader you should not be on the screen can you believe me I am not in the studio imagine what you will read up if I am in the studio.
What is there on your shopping list for Diwali?
My shopping list at this point of time is focussed on the largecaps. We have got the smallcaps, done and dusted. We are investing in some consumer spaces because those companies will be sold and that is a thesis of investment in the consumer space. We have now started to pick up some investment in the sugar sector at this point of time but that is a very tactical and not a strategic investment.
Second, our strategic investment continues to be built on commodity play. At this point of time in India, we are strongly building on industrial plays and that is where our biggest focus is.
Third, we continue to invest in the QSR space. I think those will be still on the radar. It is not that something new will pop up on Diwali but between these three spaces, we will be allocating a lot of capital and the last one we have already put in is already the power space where we believe that the best is still yet to come. That is going to be the most interesting space in the next five years or so because of the policy supportive, three people running this country’s power industry leave aside NTPC.
Basically, there are three companies which will have the entire control of the power industry in the country. Can you imagine what kind of returns can come out of it? In America, there must be about 150 companies. In a country of India’s size – just three companies. When you bet with those three companies, you are betting in terms of control on India’s most critical resource.
Yes the government may come and put in things like steel charge etc. but power is one sector they will not touch because we are short of it and we have seen what happened in the west. So these four sectors should combine to give you all the returns that we should anticipate.
I still do not believe banking is the place to be in. If India has to succeed, RBI has to stop defending the bank’s profitability and let the interest rate rise for depositors. People will spend more, consumers will come back to the market till RBI suppresses deposit rates through the banks and supports them, India remains inefficient.
I hope some politician one day will convince RBI to let the deposit rate go up to 9%, stop giving liquidity to the bank and let them go to the market to compete for deposits. Once people are assured 9% to 10% yield in the fixed deposits which is matching inflation, they will spend more money and the economy will revive. Just to protect the bank profitability RBI is doing it and I think that will come to a stop. That is why we are not betting on the banks.
Banks are sitting on profits which they are not making legitimately and hurting the economy. One day it will turn around and that is why I am betting more on industrial and consumer stocks. If that happens, India’s economy will bounce back quite sharply.
It looks like Diwali has come one week early, it is like Dhanteras for the bulls today.
I think it is a relief more than anything if you ask me. I do not think anybody believes in the rally. I do not think anybody has an answer to what transpired yesterday from 2% down to 2% up, actually a 5% gap. So let us be honest; we do not know why it happened and it is a good market to open up to but I do not know whether there are now opportunities for people who want to get in at this point of time.
However, one thing has become very clear that we need to focus on the winners in the market. Very clearly, Infosys after yesterday’s results has become the key winner in the IT space and there is no point rejoicing in the rally if you are Wipro shareholder or holding another midcap IT company barring MindTree. This is the kind of scenario which tells us that you got to stick with the big ticket winners in the market and expect that the share price crash laggards will catch up. But I think it is going to be a very flawed strategy in this market because typically the concept is it has fallen 40% and so I will get a 20% return.
That strategy is now clearly getting out of the market. There is a reason why stocks have fallen and you need to stay out of it for long periods of time and focus on the winners, even though potential returns are fewer.
I think that is where people now who are listening today are looking at their portfolios and say do I have laggards and do I need to get out of the laggards? It does not matter if today the market is up by 2% in the laggard because today you have liquidity particularly in midcap space, tomorrow you may not have that. So the moral is enjoy the ride but get out of the slow coaches because they are going to railroad your portfolio.
Read Also: Ajay Srivastava on what can trigger a 5% plus rally in the market
Which is the Vande Bharat stock in your portfolio and which is a slow coach?
Two days ago, Vande Bharat got into a mishap…
That may happen any time but the fact that it is back on the track. Any good stock may flip-flop for the next couple of days.
India is a beautiful country because the largest stocks have lower risks and higher returns. Look across at any industry; look at commodities, the number one player is holding firm; look at steel, number one player holding firm. If you look at the automobile space, you got the top guy in India. He is doing the best among all. So our bias is still in favour of the larger names compared to the smallcap names at this point of time and the mishaps are going to happen. I think it is going to happen in the smallcap consumer space.
The smallcap engineering space is going to be a serious problem in the market. Smallcap exporters to the US will have a series of problems. In the largecap space, people like Reliance which is into very low EBITDA margin businesses like garments and retail, etc with 8% EBITDA. One can seriously see a problem coming up in terms of their ability to continue to give value to shareholders.
High value added companies will gain in this market and will continue to move forward but everything can fall but the fact is the guy who can come out of it is the big guy, the better guy than the guy who is the laggard. Cotton spinning is again the same story. A lot of cotton companies have fallen by the wayside; only one or two will survive and I think the concentration of economic power in the country is now very clearly getting dominated by the bigger players and you need to be with them for your portfolio.
Given that everyone is talking about this huge manufacturing renaissance, how are you looking to play that space, is there a tilt within say defensives or look at the capex theme, how are you looking to play that space?
The capex will start with the commodity supplier who is going to supply aluminium, steel, copper, zinc and lead etc. There is a monopoly of maybe a single company in some products and maybe two, three companies in two other products at the end of the day.
That play will start if we really believe the capex story has to start from commodities and then it will move to suppliers like, I am not recommending a name but giving an example like CG Power, Siemens.
They will be the beneficiaries of what will transpire first for the commodities and then it will be those companies which will come into the play at that point of time. I think it is a very good start. A very small set of five, six companies, which are the key infrastructure and engineering players in this country. It is not a big market or a big segment and there are about five or six companies. That is the way it goes for commodities and then it is the engineering and machinery suppliers which are supplying the latest technology.
My view is yes, the capex binge will not happen because PLI will happen. We have already seen what is happening on the front. It will happen because people will need to change their setups in environment norms. So companies which are responding globally with new environment technologies will be the bigger winners and that will come on the manufacturing side is the pharma manufacturing.
It has done very badly in the last couple of years but I think you should see a pickup of that, the basic thesis is that manufacturing will first come in engineering and pharma in this country before all other things in spite of the PLI. Those two industries will remain the bigger focus of ours compared to all others and we have seen what happened to the assembly industry. Some of the stocks are listed and the EBITDA margins are 4-5% and thereabouts. So PLI is going to solve it. I think what will solve this problem is the replacement of capex to address the environment norms.
Since you are talking about the cash generating companies and I know you just hinted at the IT stocks but given the underperformance we have seen this year, does it make a good bet for the long term or will there be better entry opportunities? Also where would you park your money if you had to take a bet?
I have said earlier that the day I stop active investing, I will park quite a bit of my money. Already I have parked a lot of my money in things like transmission REITs. The day I do it, I will put a lot of my money in IT stocks because at the end of the day, over a period of 5 to 10 years, they are giving returns to their shareholders in terms of money backed in the bank at the end of the day.
On top of that they have a running franchise of a business which is not going anywhere in the decade or two. Technology may change but these are the change agents that even assured the market. It is still America and it has not gone to the rest of the world and that will happen eventually. It will come to India as well and there are three players in the market – Accenture, Infosys, and TCS.
If you put together three large global players in the market, two of them are Indian players; what better setup do you want? If you are a more active investor perhaps you can get a better bang for your buck in other stocks. If you are a passive investor and want to retire with a good life, this is the best place to be. If the stock falls, that is the time you add up to good names, you do not get out of the good names. India’s Wal-Mart story will keep giving you returns year on year and you can sleep peacefully, go for your holidays peacefully. Anybody who wants passive investing, this is the place to park your money.
Warren Buffett made his big investment in Apple after he turned 80. Late Rakesh Jhunjhunwala took a large leverage in his portfolio when he was 60 plus. What is all this about not investing and retirement age?
I do not know Warren Buffett’s wife or what she did to him, but I have a little more active wife who says I need more of your time now at least. But having said that, the moral of the story is if you want peace of mind, it is the right place to be. You want to actively go for the midcap, smallcaps, take some hits on your chin and wake up every morning looking at the newspaper. You have two choices of investment thesis at this point of time. I belong to the other thesis of risk is less.
It is a day after karwachauth is that the reason why that you are mentioning retirement?
I am telling you, you should be a mind reader. You guys should be mind reader you should not be on the screen can you believe me I am not in the studio imagine what you will read up if I am in the studio.
What is there on your shopping list for Diwali?
My shopping list at this point of time is focussed on the largecaps. We have got the smallcaps, done and dusted. We are investing in some consumer spaces because those companies will be sold and that is a thesis of investment in the consumer space. We have now started to pick up some investment in the sugar sector at this point of time but that is a very tactical and not a strategic investment.
Second, our strategic investment continues to be built on commodity play. At this point of time in India, we are strongly building on industrial plays and that is where our biggest focus is.
Third, we continue to invest in the QSR space. I think those will be still on the radar. It is not that something new will pop up on Diwali but between these three spaces, we will be allocating a lot of capital and the last one we have already put in is already the power space where we believe that the best is still yet to come. That is going to be the most interesting space in the next five years or so because of the policy supportive, three people running this country’s power industry leave aside NTPC.
Basically, there are three companies which will have the entire control of the power industry in the country. Can you imagine what kind of returns can come out of it? In America, there must be about 150 companies. In a country of India’s size – just three companies. When you bet with those three companies, you are betting in terms of control on India’s most critical resource.
Yes the government may come and put in things like steel charge etc. but power is one sector they will not touch because we are short of it and we have seen what happened in the west. So these four sectors should combine to give you all the returns that we should anticipate.
I still do not believe banking is the place to be in. If India has to succeed, RBI has to stop defending the bank’s profitability and let the interest rate rise for depositors. People will spend more, consumers will come back to the market till RBI suppresses deposit rates through the banks and supports them, India remains inefficient.
I hope some politician one day will convince RBI to let the deposit rate go up to 9%, stop giving liquidity to the bank and let them go to the market to compete for deposits. Once people are assured 9% to 10% yield in the fixed deposits which is matching inflation, they will spend more money and the economy will revive. Just to protect the bank profitability RBI is doing it and I think that will come to a stop. That is why we are not betting on the banks.
Banks are sitting on profits which they are not making legitimately and hurting the economy. One day it will turn around and that is why I am betting more on industrial and consumer stocks. If that happens, India’s economy will bounce back quite sharply.
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(What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
...moreDownload The Economic Times News App to get Daily Market Updates & Live Business News.
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
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