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It’s a very long winter for small and midcap stocks: Ajay Srivastava

ET Now|
Aug 20, 2019, 01.20 PM IST
Ajay Srivastava-1200


  • Top 10 cos are making good money and trying to compel concessions from govt.
  • We have to get credit flowing back to the bottom part of the economy.
  • Big cos will put in money when govt has taken care of competition.
Worldwide the revival starts at the bottom end of the economy that is where the least focus is going today. The top 10 industrialists are sitting on cash but will not take it out to support their own dealers, says Ajay Srivastava, CEO, Dimensions Corporate. Excerpts from an interview with ETNOW.

On a daily basis we are debating the economic pain, slowdown and deceleration in earnings. Is that in the price or is this just the beginning and the wheel will continue to reverse?
I do not know whether we have all the answers. I do not think anybody is feeling buoyant enough going into the festive season. So to say that there is a reversal of fortune on the way bothers me. It is not about whether that happens or it does not happen. It is just that nobody is feeling confident that this festive season is going to turn the fortunes around and that will dictate your mindset and how you look at news events.

Also the backdrop is globally every country is in a stimulus zone. America wants to do it, Germany wants to do it. On the one hand, the government is trying to reduce interest rates. We do not know how it burst the fiscal deficit. This is one of the areas where we are totally out of sync with what is happening globally which is lower interest rates, stimulus after stimulus and tax cuts on the way. Here we have a different set of problems. If we were part of the global thing, we would all feel a lot more buoyant as all the markets overseas are. But what we are seeing is that we are doing something very different than the rest of the world and if we compete with them, that is not good news for us.

Is it time to protect capital or time to put a little bit of capital, get rid of some unwanted stock but stay committed to this market? Do you think this is the darkest just before the dawn or we are in for a long winter?
I do not want to sound very negative today morning at least. There are a couple of reasons for that. We had a good monsoon and that is a great thing to cheer. Globally stimulus is coming and that should be good news to cheer. I do not think we are heading for a very long winter. I believe we can turn things around. Somewhere down the line is inertia. We used to use the world policy paralysis. That may not be the right term to use but it is just the inertia in the system which is not responding to anything which is happening economically.

If the triggers come, I presume we will all respond positively. The best idea I could hear was get the money from overseas at cheaper rates and give it to the SMEs which are today paying interest rates of 12-14%. This 6% yield curve is for the big institutions. The actual customers, the SMEs, are paying 12% to 14% interest rate. Give the money to them. Denmark had negative mortgage. You take the mortgage and the bank pays more. Now you got to take advantage. You kill the idea before it was even born. The two RBI Governors who created this mess, killed the idea before it was started. I do not think it is a very long winter. It is just the sheer paralysis of any policy action to address the situation that is bothering us.

If you start a more active engagement, we can ride the storm. We can do it as I keep saying to everybody. At the end of the day, if you are in equities, look beyond two-three years. Prices can go down but the choicest stocks you buy even today are not cheap. Pick up the top 10 buys you want to do in the markets and you will find they have not fallen as much as you wanted them to. So, yes, it is bad times. The smallcap and midcaps have had their run, it is game over for them. If you are hoping for revival, that is where the problem is. Big caps keep going. It is a very long winter for small and midcaps.

What would it take for the broader end of the market to revive? Would it have to be a massive stimulus announcement and completely rollback of FPI surcharge? Would that make this beaten down pockets to actually come back to the fore?
It's not about the government, it is about media as well taking a call. Look at Maruti. They have been asking for more stimulus, more lending to dealers. Maruti sits on Rs 36,000 crore of cash and they are not willing to put a rupee to support the dealers and suppliers. Why isn’t somebody asking Maruti before asking the government to do something, you should also start to put in your Rs 36,000 crore to support your dealers?

The top 10 companies have got together carrying all the news time that you can and they are taking the gambit and saying let us reduce the FPI tax. I do not like tax increases because globally, everybody is reducing tax. It is not about FPIs, it is about everybody reducing tax! I think the bigger worry is that somehow the agenda always goes to the large corporates. That is not where the revival starts.

Worldwide the revival starts at the bottom end of the economy that is where the least focus is going today. We need to call out the big corporate and says you have enough money to support your dealers and your vendors and stop asking for tax cut. What real people are in need of is cheap money; easy money for the small companies, small-time suppliers. That is going to revive this market. You give a tax cut, I do not think that is going to be of relevance to this market. We will be back to square one. If people do not have money to consume, who is going to buy these products?

At the end of the day, you need to get credit flowing back to the bottom part of the economy. It is as simple as that. Let’s stop hearing about these top 10 industrialists who are sitting on cash but will not take it out to support their own dealers.

In my 20-year old career, this is the second time I am hearing such scary undertone from the corporates, and the first time I heard that was in 2008. Corporates are saying why should we commit to capex because India has high taxes. If we are taking risk with our capital and if we go wrong with a business decision we would be named and shamed. We are happy to get a 8-9% return but that is assured rather than taking a risk to our capital. Entrepreneurs will only come when he sees his capital is safe or when there is an opportunity. Right now, both are not there?
I agree with you totally on the conventional industry. None of the promoters today have actually put risk capital behind the newer sectors of the economy. That is not so true of hundreds of other projects that we are seeing coming up whether it is bio pharma, biotech or IT. We have all heard about media commerce, social commerce. A whole new sector is coming up, which has got a lot of buoyancy in it. This industrialist bunch have missed out the bus on that one so they are still in the conventional mode. You are right, everything changes over time. We will have the conventional thing changing in terms of who will take primacy, the top 10 companies. Look at American landscape. There will be different set of companies.

The issue is not that, the issue is that the present set of policies are allowing the larger set of industrialists to sit comfortably, making money on what they have without facing competition and the reason they do not face competition is because the midcap companies have disappeared. What was keeping these companies in check and alive and alert and investing was the severe competition coming from below.

Call it demonetisation, GST or sheer lack of capital means the big companies have no competition left. Look at the top 10 companies in India. Let us take a Mahindra, Maruti. They were not scared of any competition, till Hyundai came in and Maruti got a little jitters about it. Mahindra does not fear competition; Tatas were having a good time till one point of time, now suddenly you see competition; Titan was having a very good time with all the jewellers gone, by and large.

There is an economy where there is no competition - look at aviation, Indigo has a fantastic run, there is no competition. The environment is such that the government has a benign influence towards them versus a very strong act against the small and the midcap companies -- be it compliance, income tax, name and shame. That should be scaring people because I put a venture which fails, my house goes. None of the industrialists lost his house ever. I do not think that is what is scaring them.

They are sitting in a comfortable niche, making good money and hoping and compelling the government to come with more and more concessions. That is what is ailing the big industrialists. It is not the negative voiced, they want to put their money when they can get the government to take care of their competition.

What have you done in the last one month, what have you sold, what have you bought?
We continue to add up MNC FMCG stocks. We have sold off the OMCs completely. We had a large holding in PSUs and that has been pared quite a bit and moved back towards FMCG. It is very defensive at this point of time. We have built up a large holding in IT and continue to do so. The rupee at 71.5 means we are heading for good times in IT again.

So we got into IT, FMCG, and of course, we have been heavily building up into the REITs, there is only issue and that has done remarkably well in spite of all prognostications. Now we are starting to build back into multiplexes, That is where we have got the price correction. It is a good entry point.

Aviation, we sold out completely at this point of time because with rupee going down, if oil jumps up, that is not good news for aviation. This is a rough set that we are in. I do not think we have bought anything auto. We continue to be short in auto at this point of time and we will continue to be till the festive season is over.

Also Read

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Markets are spooked because investors have given up hope: Ajay Srivastava

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India’s smallcap story has been over for a very long time: Ajay Srivastava

We are in a very stable zone, there will not be a large selloff or buy-in: Ajay Srivastava

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