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    Prefer large gilt portfolios; may give as good returns as equities: Ajay Srivastava, Dimensions Consulting

    Synopsis

    "I am not a great negative person because I am equity guy by nature. I do not like debt"

    ET Now
    In an interaction with ET Now, Ajay Srivastava, CEO, Dimensions Consulting, shares his market views. Excerpts:

    ET Now: Do you sense the market volatility because of global events or do you think it has got something to do with things happening in your neighbouring state?

    Ajay Srivastava: Neighbouring state... Well I do not know.

    ET Now: Relatively close one.

    Ajay Srivastava: Of course it is impacting us, because it is not just Bihar alone. There are two or three major issues now which is impacting the markets and when you talk to the market and the people and one of them is which most people are ignoring is the social context to what is happening in this economy and how will it finally impact the economy.

    We have not spoken about it, we do not deal with it, it left to the mainstream channel but now for the first time it is starting to impact and people are wondering as to what is happening is it going to kind of work itself into a frenzy because the ruling party loses, will they lose control on all these elements and because it is more difficult to do business in this country and when people find it difficult to do business or live in this country you cannot have economic developments. So that is one overriding agenda which is now starting to bother people not too much but it started to come into discussions at least.

    The second of course is the model of economic development now industries gradually realising that the FDI driven model of development with the government propagated is not necessarily giving us jobs, is not necessarily giving us domestic growth and if you see what has happened with the Foxconn kind of investment the blank cheque that is not the way to do employment generation in the country or support the Indian SME market or so on.

    So there is also an element of doubt creeping in that the model of economic development... is it conducive to what is happening to the economy, will it gear up to say the economy needs? And the failure of Indradhanush... that is the startling failure that the big bank reform, you saw the share prices move up and you saw what happened within two months time the prices are below what the levels were.

    It is a combination of political, social and economic model which is all coming into play which is letting people hold on to their expenditure or investment on one side and the industry today when you go around is really feeling the pinch and not finding a way out of the recessionary situation on the ground. So it is a culmination, and Bihar election will be symptomatic of what the mood in the country is perhaps.

    ET Now: Just to stretch that point forward do you think the market has already begun pricing in all these disappointments earnings for instance are already sort of in the price but what about the other parameters because slowly you are seeing the market not reacting too positive, global cues not it is just slowly grinding low and lower by each passing day?

    Ajay Srivastava: You are right, that gradually the realisation is coming in that this is not working. It is not working, it is fine. It has not worked many times. Slowly it is realising that the economic fundamentals, economic policy itself is not working the way it was promised to work, and that is why even investors look at. This year it is kind of a washout. Lot of investors are sitting with lots of losses because they built on big investment.

    If you look at mutual fund for instance, a big investment built in the first quarter of the first four-five months of the year at a high index rate, so they are actually sitting on losses. Not necessarily comfortable in the positions today, so it is a pretty sad way to perhaps end the year. We started the year with a lot of hope, ending the year with something like the Delhi weather, gloomy and toxic.

    ET Now: That is a different conversation maybe or not on this forum. I know that is a big elephant in the room but maybe we will discuss it on some other forum. Back to markets and my point is that the reason why equities look good is because others are looking bad which is gold, fixed deposits or for that matter real estate. Now Indians are still saving. We have got a $500 billion of annual saving. The option is that there is no other alternates and if alternates are not doing well, maybe equities will do well.

    Ajay Srivastava: No alternate is there, is the gilts in India. Government securities are formed perhaps in my view, we have told our investors that maybe almost 50% to 60% portfolio is in gilts already over the last six months. We think that next three years the gilts will perhaps outperform the economy and the stock market and three reasons for that. One is the premise of the whole system is that the interest rates are going to fall which is good for the people holding gilts of course.

    The second is that the economy will outperform. What had happened in the last two years and therefore stock market will outperform and we will be the outperformers... that is unlikely to happen, because the big things happening which is the crude prices falling, the metal prices falling, the global interest rate at the lowest is all going to be finishing off in this year. As we go down the path next year, we are not seeing oil prices retracting. We are not seeing interest rates going back, global interest rates cannot go below zero in any case so for the matter.

    From that perspective, you should have a large portfolio gilts in your portfolio, at least Indian, and that should give you perhaps as good a return as an equity portfolio over three years would be except I keep saying that it is a stock pickers market.

    If you happen to chance across a few gems, you hold on to them. They might give you superior return but market on a whole perhaps you would be better off with the gilts, being large part of the portfolio and keeping a smaller portion in equities as things stand today. It may change in next quarter perhaps, but today I would say gilts is one of the best investments you can have and tax-free bond.

    Of course, which are so difficult to get, reminds you of ration days when we used to stand in a queue for getting a milk bottle, that is the way the tax-free bonds are being given to the Indian public. So if you can get hold of them, get hold of them.

    ET Now: You are sounding the most bearish that I have heard you in the last six months quite frankly. Now aside of the sentiment, are there core facts which could verify the statements that you are making, for example if you believe that earnings will not come back in the next two quarters, if you believe that globally things will remain bad and therefore India will not do well because we speak to a lot of global guys and they are saying that for whatever reason sitting from their perch outside India, if they are looking at investment opportunities, India stands out, so liquidity will definitely aid India.

    Ajay Srivastava: There are no homogenous bunch of investors worldwide by and large, but technically speaking when you give zero interest money to people, they would invest everywhere in the world which is what is happening so that is not, take it that is a gospel, you have already seen in this month.

    We go current, nobody is saying that people are going to walk out of India or any such thing, but the issue is what is going to be the incremental flows, and will they influence the market. Do we have triggers to get the incremental flows in that is three-point agenda that we are looking at and there we see the situation wanting?

    That is why I said, some of the very good parts, big investments, oil price crash, the metal prices going down is all through. The optimism of the new government policy is all through. Now it is about delivery and execution and there we have a difference is that the model of economic development followed by the government which is high indirect taxations, lower disposable income with the people and perhaps too much Reliance on big bang issues rather than day to day business working. If I tell you something, you will be surprised that in Delhi customs you cannot work for more than four and a half days in a week to clear out your goods.

    Now that does not make you ease of working any better than what it was last year or last to last year, it is exactly the same it is in customs, excise, saver’s tax and all these people. So micro things which were supposed to improve our efficiencies have not happened. Big bang reforms, you saw Indradanush cannot deliver the way they suppose to deliver.

    In a sense, there is a waning feeling that the big policy items are already through. Yes GST will come and GST will give you impact three years down the line but that be so but this daily working of business and daily people wanting to buy goods and services that is where the despondency comes from. I am not a great negative person because I am equity guy by nature. I do not like debt. I can honestly tell you. I am unless forced to put money in gilt, I will not do it but today I am forced to put money because I cannot find many places to put my money for equity.

    ET Now: So tempted to ask you what product of yours was stuck in the customs for four and half days?

    Ajay Srivastava: We have some investments in the companies who import goods, so we kind of track them to see what their delivery situations are and that is when they came up and said listen this is what is happening. I said okay, fine, then we saw it, it is a pattern, it is okay, live with it, this is what happened last year, we saw the statistics, this is it. So we said okay, fine we will live with it.

    What else can we do about it? We are takers, we are not givers. So the point is every single business in this country encounters this every day and that is full in the realm of the government to cut the bureaucratic, cut the delays and make us more efficient. That is all we are asking and that is all we were expecting it to happen.

    It may still happen, I am not saying that I have written off the case, but so far the progress on the ground for these nitty-gritties is low which impacts the smaller businesses, may not be the larger businesses, but it does impact the smaller businesses. So perhaps the signal from Bihar would be expedite economic development, do something good and that maybe the silver lining for Bihar elections perhaps.

    ET Now: You almost makes it sound like a given that the verdict is going to be anti NDA. We have discussed a lot of the macro I just want to focus a bit on a few micro things as well that are happening. By the way, I do not know whether you saw the news or no, we put it out first yesterday that Volkswagen India has also gone ahead and cheated on the emission tests, so maybe your Audi, the resale value could have a bit of an impact there, but which brings me to the auto discussion. The things have changed out there, suddenly we are seeing a Tata Motors being in the thick of things, in the two-wheeler pack while the Heroes and Bajajs maybe doing well, TVS now suddenly seems to be shining out bright as well, and Ashok Leyland by virtue of the fact that it has run up so much, is facing a bit of an issue there, what is your view out here?

    Ajay Srivastava: See, the view is very positive. The only issue I have in the market is that when you look at good companies they are not coming cheaper or even reasonable, they are expensively priced, so whether you look at Maruti, whether you look at Eicher for instance, the standout performer for last three years, there is nobody better performer than Eicher in the Indian auto market perhaps, that is a given, right, the stocks are not cheap. So when you look at three years down the line and say what kind of return I make.

    These stocks were not cheap and they have given negative returns this year. If you look at Eicher was 21000-22000 is now running between 17000 and 18000, so it is not like they are available cheap for you to buy and make a handsome equity return. Therefore, rather than chasing the best performers in my view, which is what typically the policy would be, I would guess the equity stories will come from finding out little more cheaper but a conversion or better performing stocks which might have a future because when you book a Maruti or Eicher kind of stocks, you do not expect equity returns, you get gradual returns coming out at these valuations.

    I was telling somebody yesterday that this is the time when we are really working so hard and I never thought in my life I will work so hard, to find the candidates which make sense to us to give equity rate of returns over three to five years, 10 to 12% return anything I can find, that is not a big deal, but to find 20-25% return candidates those are getting very difficult to find.

    ET Now: I am sure you do not want to share those 10 to 15 return names also with us, would you?

    Ajay Srivastava: I told you just put the money in gilt, you will get 12%, 14% returns, believe me why do you have to waste your time with equities. That is as simple as that. Gilt has given us 12-14% this year in the last 12 months, will give you another 12% in the next 12 months so there is no need to worry about equities at all then.

    ET Now: But do you think times will change sooner or later, much as they did two years back as well, you were sounding as bearish as you are today?

    Ajay Srivastava: I do not know I was bearish or not but since I have made money in equities so perhaps I was not so bearish, but leave that aside, I think today I am saying we are at an inflexion point because there is everything going for this country, we have a ruling party in majority, oil prices historic lows, metal prices historic lows, interest rates on the down swing, nothing more could have been given to this country to go forward as a way we all wanted to go forward. And that is why I say I have great expectations, right because nothing more can macro-economically work for us, our deficit is under control, indirect taxation is going up, government has liberalised policy, we have right wing government in place, what more do I want.

    Everything has been given to me somehow the translation is where the problem is and I am hoping and really hoping that translation will come about in the next 12 to 18 months, and that is why I said perhaps Bihar elections will have a positive fallout that the execution parts will start to accelerate and we will see greater translation of policy into action into our stock market realisations. That is why I am hopeful about, because I do not think India has ever had a better set of situations than we have today, but whether the translation will happen, time will tell. I am hedging my bets, 50% gilt, 50% equity, maybe that is wrong, but maybe perhaps that could turn out to be right, I do not know.
    The Economic Times

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