By and large, profits are wiped out. It is all about managing your portfolio at this point of time and not panicking out of stocks, Ajay Srivastava, MD, Dimensions Consulting, tells ET Now.
Edited excerpts:
What are smart people in Gurgaon doing, are they buying or are they booking profits?
It is not about profit booking any more. By and large, profits are wiped out. It is all about managing your portfolio at this point of time and not panicking out of stocks that you really do not want to panic out. The mood is sombre and it is not because of oil prices. A lot of things which should not have been said is being said. I like what the SBI chairman said yesterday that it is a market opportunity. We like to go and shop Rs 45,000 crore thats what we like to hear in a free enterprise, leading to market collapse. We do not need that. We are a large economy. The doomsday scenario should be kept away in communication. Most of the supportive mechanism will fall in place and we will do alright.
Emerging markets have corrected and the US markets have not corrected. What happens if the US markets start correcting?
Even if the US market corrects, they have a policy framework to support the economy and the market. The construct is very positive there. The mindset from the top leadership is to ensure that the capital market remains where it is and obviously they are winning the war against China on the trade side. They are doing a lot of correct things. They are bringing the jobs back to America. They are opening factories in America and these have happened in the last 12 months.
Making a case of a large-scale fall in American markets looks difficult. Having said that, the question is will the growth in America percolate down to rest of the world? A lot of the growth actually is now moving away. China is a very clear example. Growth has moved out of China back into America. The question to ask is what are we doing? Two, each country has to account for the way they run their businesses and the way the stock market is respected.
By and large, emerging markets including India treat stock markets like a mini casino. We do not understand stock prices. I saw a chairman of a large company saying very proudly that he does not look at his stock price. But, he should look at it. We put money in it, so you should look at it.
The mindset in the US is so different than what we see in emerging markets. Emerging markets are the socialist economies of the world, masquerading as capitalist economies. They all treat stock markets with disdain and that is very evident even in India at this point of time.
Therefore, while US may go down, but they will come back and revive it. They respect the market. They respect the economy and they are doing the right things to get the economy going. We need to get out of our socialist mindset of loan waivers and MSPs and all the other stuff which goes around and does not give productive investment to the economy.
Look at what has happened to our capital growth formation, look what has happened in America. A large economy is growing faster on capital goods than we are growing! One has to see which of the emerging economies will put its house in order and benefit from the US-China trade war.
People are betting that with the sudden fall in currency, exports will revive. Do you agree?
It is not a misplaced idea but the amount of damage that has happened to the MSMEs in the last 24 months limits what we can exploit in the short term. We can take a lot more steps and take charge of the situation, but in the short term, can we become a major exporting economy? No, we cannot. Our GST mechanism has a crippling effect on working capital. We need to legislate out some of the stuff very quickly if we have to capitalise on it.
Look at what has happened to leather industry by and large. Whether it is cotton textile, handloom, handicraft, garments or leather, all are struggling today, Can they benefit from a weak rupee? No and the reason I say so is, already a lot of US customers are saying you got a big bonanza on exchange rate, how about passing some back to us? So we have depreciated, other emerging economies have depreciated and the exchange difference benefit is not very significant.
Our infrastructure does not allow us to do significantly increase exports in basic industries.
Is the lifeline extended by SBI, RBI to resolve the liquidity crunch in NBFC industry enough?
It is a great reassuring step by SBI. I like what the SBI chairman said that there are good assets available at a good price in a fire sale and one should go grab it. SBI for the first time in years has come out with something which is so business like and correct for the economy. Having said that, it is not about liquidity. The policy stance was that too much of short term money was being deployed by NBFCs. That is not so true.
I saw the disclosure of Edelweiss Capital. 40% in medium term, 40% in long term is not true. Some of the myths are hitting the market. The word is out that too much of short-term money is deployed. Yes some money is deployed which is always part of the treasury but not everything was short term.
The way we have priced our NBFCs, the only reason why we will not buy them today despite being available at only about 2 times book value, is the fear of regulatory action. I do not know if the action would be ad hoc and hurt the industry very badly, We carry a baggage. About 10 to 15 years back, NBFCs were a vibrant business. The regulatory scenario changed dramatically and NBFCs died completely. For the next 10 years, we never heard of NBFCs.
In the last five-seven years, we again saw revival of NBFCs. Arbitrary regulatory action may put them in a slumber mode for some time to come. So, I would say valuation-wise, or business model wise, there is no problem with NBFCs. But the regulatory scenario puts up a question mark. So wait a while but you can start nibbling at NBFCs. I still believe that there is a need to have NBFCs in the country. We need to support it.
If you look at the last 12 months, it is consumer credit that is keeping the economy going. It is the credit card, auto loan, personal loans that are keeping this economy ticking and not industrial growth or industrial expenditure. Let us not kill the golden goose that has delivered beautiful growth to this country. I am expecting a much more supportive framework of regulation and not some knee-jerk reaction to an IL&FS crisis.
Let us not equate IL&FS with rest of NBFCs. It is so different and I would tend to believe that putting IL&FS in NBFC dialogue is going to get the truth. The truth is that there are very good quality NBFCs. They maybe overvalued but they are good. And then you have IL&FS. Both are not riding in the same boat.
Would you extend this argument for HFCs as well?
Even housing finance companies are consumer oriented. If you look at the portfolio books, almost 80-85% is consumer housing loans. With 15% to 20%, HDFC has the biggest share; 20-25% goes to the builders and companies. I would term them consumer loans. What is happening to the loan portfolios of HFCs of projects which are in the limbo? I would approach it with a little bit of caution for the next quarter or so because you might see lot of the NPAs of retail coming into the picture from unfinished projects.
Barring that, they are good. They are governed by NHB, which has no issues with the portfolio. NHB is, in fact, sitting with surplus liquidity and no HFC is borrowing from it. Today, they have got Rs 30,000 crore. They said only Rs 8,000 crore have been borrowed. There is enough liquidity for HFCs. It is safe and sound, there is no liquidity issues, no portfolio issues with the housing finance companies.
Is there going to be a consumption led slowdown with people buying fewer cars and consumer goods? Would you buy any of the autos or consumer goods companies in this decline?
I do not think the fears are overdrawn. There is a serious problem in the market and the real growth rate is not going to be over 6%. If oil is going to take so much money out of your pocket, your income is not going to grow dramatically.You are not going to spend discretionary money when 30% of your budget has gone towards paying extra for the school bus for your child and for your own vehicle. Quite logically, the consumption will be squeezed at the end of the day.
With the NBFC squeeze, money available off the shelf might also be an issue at this point of time. So you must plan your portfolios based upon the fact that consumer buying is slowing down. The stock prices have corrected substantially. Look at Eicher, Maruti. I am not sure if the market is already factoring in slowing growth.
My guess is that bottom will be reached only after we see the September results. I would say wait a while, it looks tempting, Maruti at Rs 6,700 and Eicher at 29,000-28,000 look very tempting, but wait a while. Consumer squeeze is happening right now. You need to exercise caution because problem is going to be in the system for a couple of more months as our growth is slowing and slowing fast.
I will throw some largecap names which have fallen 30-40%. and Which is the blue chip stock you would like to buy — Tata Motors, HPCL or Maruti?
I would tend to buy Maruti for the simple reason that sooner or later it will turn around and it will give me some value for it. That is the only reason I would buy it. But having said that, if you look at some of the very cheap stocks, look at commodity stocks. Some of them are PSUs and they are priced at one time book value with zero debt. Now that is an incredible buy. You may not get a return next morning or in five days, but you will get a phenomenal return on a three-year basis.
You will not get natural resource companies at one time book value with zero debt. They do not exist. Whichever government comes in, divestment will be part of the agenda for raising money. These companies will be the first to be bought by global majors, and companies like Vedanta. You would find that instead of buying the regular names, try to go for longer portfolio stocks, book values and then start to buy the stocks because earnings may not be very attractive for some time to come.
You need to buy fundamentally strong balance sheets at this point of time with natural advantage and wait with those portfolios. These will be less volatile given the fact that they are already one time book value with zero debt. You cannot go much worse than that. So base a good constructive portfolio, on book value rather than earning potential.
So, Maruti would not qualify under this bracket. It is an expensive stock. But if I have to buy a Maruti, the second order would be obviously HPCL because that falls into this category of close to book value. But HPCL has gone under ONGC and so I do not know what is going to happen there. The problem of Tata Motors is so large that as an Indian investor, I am really buying JLR stock and I do not know enough about JLR to know that when it will turn around. So that is perhaps the rationale.
[contf]
[contfnew]
ET Markets
[contfnewc]
[contfnewc]
