“It is good for everybody, good for investors, good for savers, good interest rate and with the rains coming I think we finally can hear sigh of relief that what was the biggest question mark in the economy possibly will get addressed in the next 30-60 days,” says Ajay Srivastava, Dimensions Corporate Finance.
Take a look as to what the month of June brought us and now it looks like July as well is getting off to a stellar start.
Ajay Srivastava: I tell you look at inside the screen, look at outside the screen, it has been absolutely stellar. We got rains in Delhi finally after 50 degrees centigrade. So, I know I could not have asked from the God better things in life. I do not think I will make any trip to any pilgrimage site. I think I have got everything what I wanted right here, sitting here.
It is good for everybody, good for investors, good for savers, good interest rate and with the rains coming I think we finally can hear sigh of relief that what was the biggest question mark in the economy possibly will get addressed in the next 30-60 days.
We have had an extensive discussion on the entire banking space and the fact that a lot of now private banks are coming to the fore after being fairly lacklustre if you will. What is the view on the entire financial space according to you?
Ajay Srivastava: See, there is nothing wrong in the financial space except the fact that in the relative sense of your money on capital employed you will be far better off in many other sectors of Indian economy and stock market than the bank.
The banks have been a laggard and there is a reason for that. If you discount out the valuation of some of the integrated companies which have got the AMCs, the insurance, general insurance, life insurance, the rest of the bank is rather unimpressive in terms of return and there is a reason for that.
One of the big reasons fuelling this rally and people understand is company’s ability to raise capital. Just see the humongous amount of capital being raised in the economy. QIPs, promoter sales, all it tells you is that this is an economy which is driven by equity not by debt. When we meet companies, they do not want to take debt because equity is available pretty cheap at this point of time and easily and very fast.
The deal turnaround cycles are three months to six months. So, fundamentally the banks have a problem that the best customers of them can raise equity any point of time. Most of the India is getting deleveraged.
What do they do? Leave aside telecom and infrastructure, rest of the India is deleveraged substantially and you can see the balance sheet of most companies and their ability to raise capital more and more including the SME segment which has been on a boil.
So, therefore, one fundamental is the fact that the customer lot is shrinking. The banks do not have enough customers. So, what do they do? They go to customers who borrow at 3% interest a month, that can go on for some time, cannot go on for all the time, that is one. Number two is I think RBI has prudently kept interest rates high.
Savers are getting a good deal after maybe a decade in this country and therefore the cost of capital for the bank is going up. So, your raw material price is going up, your customers are shrinking in terms of quality and that does not sound good for the economic entity.
On the other hand, if you look at India’s power sector, defence sector, port sector, infrastructure companies, their growth trajectory is in a different order altogether.
So, nothing saying taking away from the fact that Bank Nifty may still make highs, it will go up but I do not think that investment in banks would give you a relatively better return than many other sectors of the economy and that is where I think as investment we prudently allocate to say let us go for something which is more sure, more gives us bang for the buck than go for the banks. They will go up, but I think they will be the relatively underperformers again in the next year compared to rest of the market.
Where is it that you are seeing that multiplier kind of opportunity and where is it more importantly that you are confident of putting fresh money to work even right now?
Ajay Srivastava: I think the first point is nothing changes in this world. So, I am so boring, predictable that when people tell me do not come to office, we know what you are going to tell us anyways. The same sector themes are going on. The power sector doing very well. The infrastructure companies which are the suppliers of technologies in this country with a couple of MNCs doing extremely well trajectory.
If you look at the restructuring cases, phenomenal. You look at what happened to a real estate, a garment company turned into real estate in Mumbai. You are talking of de-mergers of companies. It is a huge amount of plays coming across the board. You have seen the action happening in cement. Conglomerate discounts, holding companies whether you look at the Jindals or the TVS Group holding companies, they have value. Look at capital market companies, whether it is a depository company, whether it is an asset management which manages all your mutual fund, they have a trajectory which just goes up and up.
They do not have competition. They have almost monopolies. So, capital market, defence, infrastructure, restructuring, de-merger stories I think these are the five or six themes which are playing out very well at this point of time. No need to change your allocation. You are doing well. And as I said I think most of the sectors will do better than banks and that is why we do not like banks to allocate capital significantly. They will go up, but not so much.
Also, in the last two odd months or so, have you been profit taking anywhere or are you all invested in?
Ajay Srivastava: Every time I take profit, next morning you will see a smiley going the opposite way. Every morning. I think it has been the worst market for a seller. You just hate it. But okay. But what you do is if you enjoy, you spend the money well, you do enjoy the money. So, yes, we have been selectively taking profits in some of the sectors, like hotels we have taken a lot of profit off the table.
Airlines we have taken some profits off the table because possibly the growth trajectory may not be as strong. So, two big sectors we have taken money off the table have been the airlines and hotels. Rest of the thing is deployed. But as I told you it is always remorse after selling, but joy is what you use the money for, so it is balanced off.
This is not a seller’s market that is the point I am saying. This is not a seller’s market. This is not a market for the shorts. This is just a pure market to sit and enjoy what the ride is going to be.
I guess while you are enjoying the ride is that going to be the philosophy as well that you will adopt when it comes to looking at some of the classic defensives in the market or is it being very picky when it comes to this space?
Ajay Srivastava: Classic defensive, FMCG, yes, we have a certain investment allocation but that is all about it. Pharma does well in once in five years, so if you have caught the rally, I think you have done a good job.
If you have not caught the rally, you will see three-four years of trajectory going back and forth.
So, as I said there is no need to in fact go defensive in this market. There is no need to be defensive because the sectors which are growing are priority for the government and they are almost like oligopolies if not duopolies or monopolies in this sector.
Look at ports, just two companies straddle the whole thing. Look at shipyards, maybe it is a PSU but two companies, three companies straddle the whole thing.
So, at this market in a buoyancy momentum and remember this globally, we are not the only ones there. Nasdaq at historical high yesterday. Dow Jones historical high yesterday. Japanese index historical high and Nikkei historical high.
So, we are not alone in this world. It is not like we are the lone star shining there. All the markets are at historical highs and all the market historical highs when the interest rates are at the peak, that is some combination to fight for. No need to be defensive in this market. You got to be aggressive. You got to hold your position. Build when you can. Build on a correction. But do not deviate because this is a market not for being defensive.
