- How to navigate volatility in markets?
Samina Nalwala speaks to Dimensions Consulting's Ajay Srivastava on 'Talking Point'. #NDTVProfitLive
Samina Nalwala speaks to Dimensions Consulting's Ajay Srivastava on 'Talking Point'. #NDTVProfitLive
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00:00 And it's of course, more importantly, a Friday. Ajay, as we are getting into 2024 with a little
00:05 bit of volatility, what do you expect from this calendar year? Do you think returns of 10% to 15%
00:10 are on the anvil and what factors in your opinion may play spoil sport or actually support the
00:17 markets? See, if you are targeting a 10%, 15% return, then why would you want to be in equities
00:24 in 2024? Then you might as well be in debt, which is going to give you a much superior return,
00:28 even if it is gilts, it's going to be a super return. So you don't need to be in equity if
00:34 your target is 10%, 15%. Given our interest rates, our equity target has to be a minimum 20% return,
00:40 otherwise we're not doing fairly to our portfolios. And for that, you need to stick to themes. Don't
00:45 worry about the market, market does its own thing. You may not be in IT totally altogether,
00:49 you may be in partly in banks or may not be in it. So I think the focus has to be on what themes are
00:54 you running and build those themes, continue to run. The three, four themes which have run for
00:58 the investors last year has been real estate, has been defence, has been capital goods. I think
01:03 that sums up the whole market-ready return. Leave aside the small cap, which has been
01:07 done what it's supposed to do in normal times. So therefore, one needs to focus upon and say
01:12 whether the same theme will work or not work. And I think those themes are good to go for a 21%
01:18 returns in this market. Anything below that, then why would you want to risk your money in this
01:22 market? Ajay, a very fair point, but the fact remains that long-term returns on the Nifty have
01:29 been early teens. And I know while we can aspire for 20% plus returns, then are we saying that the
01:35 broader markets is probably the best place to be? And I'm talking about a long-term return average,
01:40 not a year, 20% one year and 5% another. I wish I could answer the question that long-term,
01:49 every time we talk about long-term is when the market is down, we look at long-term. When the
01:53 market is up, we start looking at the shorter term. I think, you know, there's a phrase called
01:58 long-term. What does long-term mean? It depends on people, the investor horizon. If you're 75 years
02:02 old, your long-term is all of five or seven years. If you're 30 years old, your long-term is 45 years.
02:07 So I think each investor has his own determination of what is long-term for him, what are the
02:11 objectives of saving. But I would simply say at the end of the day that given the way the
02:16 compounding works, if your portfolio is not doing well in the short term, it's very difficult for
02:22 you to catch up all those compounding over the years and carry on the long term. So yeah, I do
02:27 not know, Nifty, you know, whether it's 19, 20, 21%, then you just need to buy the index at the
02:32 end of the day. You don't have to worry about it, keep buying the index and write the index over a
02:36 period of 20, 30 years. If that is one objective, then your volatility of stock sectors, etc.
02:42 disappears. But as we all do, most of us invest for ourselves, most of us are in PMS, most of us do
02:48 investment for others. For them, year-to-year comparisons become equally important. And that's
02:54 what the point I'm saying is that yes, long-term is important, but at the end of the year, one looks
02:59 at the balance sheet and says, what have we done with our funding? So there is a criterion to
03:03 invest in index and leverage long-term, but there's a criterion say, I need to make my money go to
03:07 work, and when money goes to work, I need to make a return superior to the market. And in this market,
03:13 you know, which is a cause with opportunities, yes, there are valuation issues, tremendous valuation
03:18 issues on lots of stock, but also opportunities, which nation in the world is having three IPOs
03:24 every week? You're getting new, new companies coming up, you've got the hotel companies on a
03:28 spree which we've never seen, capital good, railway good sector, which unbridled growth that we've
03:33 never seen. So, you know, to temper ourselves down to say last year was good, therefore, we should
03:38 look at less. I don't think that's the right way to go in a market, which is going gangbusters,
03:43 and hopefully with the election result out of the way, it's going to be the next leg of the rally.
03:48 Right. Ajay, then talking about the next leg and talking about those superior returns,
03:53 in your opinion, what sectors in calendar year 2024 could provide investors with those opportunities?
04:01 See, I think that's why I said we don't need to change our teams very much. At the end of the day,
04:05 the team remains capital goods, the team remains hotel, the team remains airlines,
04:09 the team remains what we did well in last year defense. I don't think we need to change the
04:14 team. You know, it's not going to happen that suddenly sugar mills will start to give you
04:17 superior returns. In an election year like this, commodity players are going to have a tough time
04:22 because government is not going to let prices go up. You just saw sugarcane prices going up by
04:26 20 rupees this morning at the end of the day. Therefore, I think one would focus on the same
04:31 sectors and do not try to hunt for value at the lower end in people like companies like sugar,
04:38 cement, fertilizer. I think these are three consumer retail. I think that's going to be the
04:43 bummer of the year, if you ask me, because purchase price is down dramatically. The
04:48 companies will sell to consumers at the middle, upper end, doesn't matter which end, are all
04:53 facing retailing companies, tremendous pressure on demand falling at all. And you know, the whole
04:59 thing is that the consumer spending is changing. What we were spending earlier on, say, let's say
05:05 clothes, we are now spending on holidays. What we are spending on holidays earlier in hotels,
05:10 we're now spending holidays in destinations which we never went for. So, you know, the nature of
05:14 consumption is changing, nature of basket is changing, and we need to follow it. What is not
05:18 changing? Government spending on railways, government spending on infrastructure, government
05:24 support spending on renewable power, power sector. I think government spending on defense and to
05:29 Indian companies, that's not changing. So why reinvent, why do things which don't require to
05:35 be done? Government has told you, we're going to spend money of, you know, serious amount of money
05:39 on railways, why just follow it, the path of it? My view is, keep doing what you're doing correctly
05:44 in the last year. If government does what it does in the current year, what it did in the last year,
05:48 you'll be safer there where you were last year, compared to finding new places to invest.
05:53 This is very interesting, Ajay, because I think a lot of people have talked about how they would
05:56 rather be in sectors that do not actually have a reliance on government. And it's nice to hear that
06:01 you believe otherwise. Sectors that you highlighted have been multi-baggers of 2023. I mean, railways,
06:08 for example, IRFCs are 52% in the last 10 days. Are you still of the opinion that some of these
06:15 counters like an IRFC, a Rail Vikas Nigam, maybe a Zen Technologies, Paras Defense,
06:21 have the opportunity to do over 20 to 30% returns in this calendar year?
06:26 You know, I'll ask you a simple question. Supposing you walk into the investing market
06:31 today, you just got a job today. You didn't have the luxury of investing when the share was,
06:36 Zen was 40 rupees, for instance, or whatever, you know, IRFC was. What are you going to do? Are you
06:41 going to sit there? You know, the legacy of past prices is the, I think it's the peril of an aging
06:47 person. And I try to get out of it. Because assuming I'm just walking in today, or my children
06:52 walk in tomorrow into the market, for them, whether the HDFC Bank IPO came at 40 rupees is irrelevant
06:58 to them. My view is always that, look forward to see where are you buying? Are you buying the right
07:04 place where there's demand traction? And more important, is there a moat there? If you have a
07:08 moat, I think you're fine for investing it. You may go wrong on valuation, you can correct it. You
07:13 don't have to put everything up front in a stock, and you can correct it. And number two is, you
07:17 know, you spoke about government policy. Unlike other sectors, in capital goods, government policy
07:23 doesn't dictate so much because, you know, when you want to buy a railway locomotive engine,
07:27 there are only two companies in the world who can supply it to you. So you can't go and dictate the
07:31 price to them. So, you know, so unlike a sugar or a cement where you can price control and do things
07:37 like that, you can't do that in some of the sectors where there are also MNCs sitting here with the
07:42 technology. So, you know, differentiate between what can be impacted by policy, what not. And
07:48 defense, not very clear policies, Indian companies are going to play a big role. So, you know, and
07:53 we just even started on it. You know, if you look at total defense purchases, it's not even 10% of
07:58 what India spends on defense from Indian companies. Imagine five years, seven years down the line,
08:04 what kind of defense expenditure we're talking about and how much will come to Indian companies,
08:08 whether collaborators or directly. So, you know, these sectors will get influenced, but not so
08:14 directly like the cement, sugar, etc. with the government or the steel, with the government can
08:19 influence this. I want to cut the price and therefore I will drop the tariff and let imports
08:23 roll in so that steel companies don't make money or I'll ban the export of steel if the prices go
08:28 up. That is not possible in these sectors. And that's where the advantage lies, even though
08:33 government is the biggest consumer of these industries. So, I'd ask you for your favorite
08:38 stocks where you still see those sort of returns in the, I'm going to try my luck on this one,
08:44 on railways. What is it that you like? Because this rally isn't stopping and I agree with this.
08:52 See, the good part is, I can't name the stock, the good part is there are only five stocks,
08:56 including two MNCs, which supply to the railway at the end of the day, three Indian companies,
09:00 two MNCs. There's nothing, you don't need to be, you know, you can just Google and say who are
09:04 the suppliers and you'll find the name at the end of the day. So, I think the good part, you don't
09:07 need to spend your agents trying to find the hidden guy who does everything for them. There
09:12 are only three companies who have been enabled for coverage, for instance, which is a safety system.
09:16 You can go on the railway net, you'll find the three companies are enabled. One is doing very
09:20 well, the other two are struggling, but may catch up. So, you know, so if you read the Prime Minister
09:25 talking and the railways talking about coverage every day, that those companies are enabled,
09:28 means they can only get the orders for the next five years. Nobody else can step in.
09:32 Locomotive engine, there are only two companies who supply to the railways in India. So, you know,
09:37 so I'm sorry, I can't name the companies, but it's not so difficult to find what is driving the
09:42 purchase of railways and where the critical equipment is coming from. And just piggyback,
09:46 you know, we don't need to worry about it. And the government is, if it continues in power,
09:50 I think the 10 lakh crore capex should move to about 15 lakh crore next year.
09:54 And that's 50% jump in expenditure. So, yes, they are multi-baggers, but I don't have the luxury,
10:00 if I'm a younger person to go and participate, predate it. I can go back in time. I love to go
10:06 back in time and redo. Every investor's dream is to look at yesterday's newspaper and do a trade.
10:11 I promise you that much, but unfortunately we can't. So, let's gamble on the future.
10:16 Let's talk about another sector that is more inward looking and actually has been,
10:21 I think the only turnaround story is the fact that demand locally will pick up. And I'm talking
10:26 with speciality chemicals. These were darlings of D Street over two years ago, but the last two
10:33 years have been rough. There is expectation that in the next two quarters, things will stabilize.
10:38 Do you think speciality chemicals, you know, has that opportunity for investors to
10:43 earn multi-bagger sort of returns with this smaller sector feature on your core portfolio?
10:49 See, right now we have zero, absolute zero in it and for two reasons. One, what has happened is
10:55 that this sector again does wonders for two, three years, then settles down for a normal existence.
11:01 Capacity in India has gone up tremendously. And what was supposed to be China plus one trade
11:06 has not materialized. The fact remains that China plus one trade has actually become China
11:12 plus US, China plus Europe. So, what do you see? You talk to customers today, you want globally
11:17 travel and you see most companies are what they're doing. They're saying, okay, whatever we're doing
11:21 in China is fine. Whatever extra in Pharma side, if you look at speciality chemicals, they're saying
11:25 we'd rather do it in Europe or rather do it in America. It's not necessarily that India has got
11:29 the bulk of the business. That's not going to happen. Number two is capacities have gone up
11:35 tremendously. And the third part is that thanks to the biotech dry down, which has happened in the
11:40 US, the new opportunities from new companies has dried up dramatically. That was India's driving
11:45 point was new companies coming up and asking them to come to a cost economic sector like India.
11:50 That's not happening today from the US. So, if you look at China plus one moving to China plus Europe
11:55 and US, the Americans have not dropped China as a supplying soul, which is expected to happen.
12:02 Too much capacity addition in India at this point of time and biotech demise of the biotech and the
12:07 smaller sector in America, thanks to the funding winter, all have kind of compared a demand
12:12 compression. And you will continue to see the fact that the demand for whether the CDMO or
12:17 demand for speciality chemical for industries will be static with lower prices in the current year.
12:23 So, I don't think in the current year, we're going to see some dramatic reversals of fortune for
12:27 these companies. They're struggling for order book at this point of time, as we understand,
12:30 some may do better than the others. And large, second large, the agrochemical, which was a major
12:35 driving sector for this industry. Look at speciality chemical, agrochemical gave the maximum
12:42 profit. That sector is a serious doldrums around the world, over supply, price, pressure, all put
12:46 together. So, this year, I don't think it's going to be a turnaround. And the stocks have not
12:50 corrected that much. Stocks are still 40, 50 P at the end of the day for most bigger companies,
12:56 certainly not less than 30 P. So, you're degrowing with a 30, 40 P. Now, investors can still buy it,
13:03 but to get a return is going to be difficult. So, I think I would let it go by for this year,
13:07 let the system adjust, then go back to it, but certainly not in 2024.
13:11 Interesting. And it's always great talking to you. We'll take a quick break. We'll come back
13:16 and continue our conversation. So, stay tuned.
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15:56 Welcome back. We're in conversation with Ajay Shrivastava on Talking Point. Ajay,
16:00 any of the large cap banks have the potential to do 20% plus returns this year?
16:06 I think the PSU banks, if you ask me, the large PSU banks can definitely do wonders. I don't know
16:13 20 or not, but I think they will do wonders because their business is stabilized and they're
16:18 lending to the industrial sector a lot better than others. They will go to the power sector,
16:22 they can lend longer term. You know, the asset liability fear of private banks is not so prevalent
16:26 in nationalized banks, so they have greater power to lend to projects at this point of time.
16:30 So, if they can, they're still okay value. It's not, they're not certainly undervalued like last
16:37 year. They've gone to some fair value. But I think among the banks, I would say the top three PSU
16:41 banks would perhaps be the places where one can be if you want to be in the financial sector to get
16:47 a superior return in the market. So, it's PSU, bigger PSU banks, I think would be the order of
16:52 the day. So, I'm assuming you don't have the same emotion or thought towards the three to four large
16:56 private sector banks that have been in the news in the last few days. See, you know, I keep saying
17:04 that this is what competition does. Those were complacent elephants which were sitting there
17:09 because RBI did not issue a banking license for almost 10 years. So, they made hay, they made
17:15 money and they actually thought they were good at the job. The fact is what the thing has told
17:19 them is when the fintechs came in, when the new age companies came in, when the wealth management
17:23 companies walked in, they took away the cheese moved and they were still slumbering in their old
17:29 world. And I don't see any difference today. The quality of service one is getting from places like
17:34 HDFC banks that we bank with them. It's pathetic, absolutely pathetic. The only reason we bank with
17:39 them, it's convenient, you're there in the past. But the shocking quality of service standard which
17:43 have now prevailed compared to, you know, you ask anybody who does stock market trading versus
17:48 through a banking brokerage firm versus a direct tuning, they'll tell the difference in quality
17:53 of service. So, I think competition, a lack of competition made them complacent. HDFC of course,
17:58 different animals paying the huge price for bailing out HDFC limited. That bailout is still
18:03 continuing. You know, one can argue the FIs were dumb. I think there are some FIs can be dumb also,
18:08 right? Not necessarily that all whites can have to be smart about it, that they thought that's
18:13 the greatest thing in the world. It'll pay the price, the pain will go through the system.
18:17 And you know, but as investors, you don't need to go through the pain. FIs have to invest by a
18:21 certain module, certain thing, norm that they need to match the index, they need to match the
18:25 weightages. Investors don't need to do that. So, why would you want to go to a slumbering elephant
18:30 to this point of time? And they don't know which way to go, to sell retail, industrial, working
18:36 capital, you know, it's a model is all fuzzed up. So, I would simply say the safer bet would be
18:42 your new age companies in the fintechs, your new age wealth management companies who also carry
18:47 benefit of carry at the end of the day, because they have AIFs, et cetera, put your money there.
18:53 And if you really love banks, I would say the top PSU banks would be the place to be safe,
18:57 because they will lend to large projects, and they will make decent amount of interest income
19:01 at the end of the day. And RBI governor is clear, he's not going to let retail lending go out of
19:05 control. So, I hope you saw the message yesterday from Davos. So, all in all, I don't think so
19:11 private banks, I think they need to get more comparative. I think they need to just smell
19:15 the coffee and get real about customer service. Right. Ajay, a very quick question, IT sector,
19:22 you've been optimistic on the space. And I did read an article from you a few months ago,
19:26 where you said tech should remain as part of a core portfolio. We've seen earnings now in the
19:30 street reaction is mixed, right? Do you feel like this sector could pull in the kind of returns
19:37 that we are hoping for? Of course, you can't ignore tech in this world, the only constant
19:41 theme for the last few decades and the future is technology. How would you approach the tech space?
19:47 What is the specifics that you would play with here? See, you know, tech space has, you know,
19:53 traditional tech space definition used to be only software companies. That's not the definition we
19:57 use the tech space if we know if you were to look at it, includes the universe, which is coming to
20:02 the new age companies includes the universe also to things like telecom telecom is the biggest user
20:06 of the space. And I think in India, it's worked across larger software companies, some small,
20:12 but also telecom space has done wonders to us and will continue to do wonders to us. Some of the
20:17 new age companies, which we call a tech because the primary tech bits are how also done wonders.
20:22 So just broad based horizon to say tech is not all about people doing service to America. It's
20:27 broad based to include the telecom companies, include some of the new age companies, then you
20:31 set up a tech basket and it'll be good. And the good part about tech environment today, that and
20:37 particularly the software companies, no equity dilution over the last decade or so investors
20:42 music, dividend and buyback continues to be suffered. So you get your money back and don't
20:47 spend it to stuff that you don't acquisition, et cetera. We don't make money for the company.
20:52 So third, at the end of the day, you can't recreate the outsourcing giants, no matter, you know,
20:56 things will change. And just now what we are, India and Asia and Africa are still to come up
21:02 to the bandwagon of technology. Look at our Indian bank spend on technology next to nothing. We just
21:07 spoke about customer service and problems. India has spent barely anything compared to a JP Morgan
21:12 or a city or a chase. Now the city is a great example to take either way at this point, my
21:16 first company, but not a good example. But the fact remains that tech is critical. As you said,
21:22 it's important. If this company is evolved, I think they will do wonder. India is going to be
21:27 a huge opportunity. You just saw pieces got bailed out by BSNL contract. Can you believe it? When,
21:32 while you're thinking or think about pieces getting bailed out by Indian government contract,
21:36 but India is going to be a big Africa is going to be big. Asia is going to be very, very big for
21:40 tech. So don't write it off. It's done decently. Well, if you look at last seven, eight years,
21:44 it's done very well for you without the volatility that you see in other sectors.
21:50 So I don't see as an Indian investor, not investing and keeping a portfolio in tech,
21:54 just broad based. So you're not just dependent on the three giants or three or four mid-cap
21:59 companies servicing the US and you'll be fine. You know, how do you, it's like buying US without
22:04 buying NASDAQ. Can you believe it? And therefore, when I said tech means buy India, also look at
22:09 NASDAQ companies. You know, we can invest abroad, allowed to legally invested. So just without tech,
22:16 there is no work. So without tech investment, there can't be a portfolio.
22:19 Agreed. And the two big sectors are fin and tech and you can't ignore them as any country grows.
22:24 Thank you, Ajay. It was always and always has been a pleasure chatting with you.
22:28 You have a great weekend.
22:29 You too. We'll hopefully see you soon. With that, it's a wrap on Talking Point. Thanks for watching.
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