Two Sectors Ajay Srivastava Thinks Will Be ‘Standout Performers’ In Next 12 Months

While Indian equities recovered some of the losses from their worst plunge in more than a decade, Dimensions Corporate Finance Services Pvt. Ltd.’s Ajay Srivastava said the rally was driven by “over-optimism”.

“This is what happens when you do all these artificial things, when you put 100 percent margin on shorting and let the bulls run till the fundamentals hits them. When you tinker with the market structure you can inflate the index for some time but then realty will hit you,” the managing director at the corporate and financial consulting company said in an interview with BloombergQuint. “What happened in the market was over optimism, global rally was taken as Indian rally, and shorts were taken out of the system, thanks to the margin. I wish SEBI brings back the order and allows both bulls and bear to run in the system.”

Indian equities tracked the worst global selloff since the 2008 financial crisis as the new coronavirus pandemic stalled economic activities. India went into the world’s strictest lockdown to prevent spreading of infection. The benchmarks, however, recouped some of the losses after the Reserve Bank of India and the government announced stimulus.

Srivastava said there are two sectors that can perform well in this current scenario. “Agrochemicals and tractors will be standout performers for the next 12 months.” Restrictions on imports from China, bountiful harvest and rains, government’s focus on the sector and agriculture credit not getting comprised are the factors that will help these sectors, he said.

He doesn’t expect all specialty chemical makers to emerge as a winner. “If a company’s focus is on pharma and agrochemicals then it will do well, but if it is focused on industrial chemicals there will be a serious problem,” he said. Srivastava even suggested exiting these stocks if valuation reaches 4 times price-to-book no matter how attractive the company is.

Also, investors, according to him, should look at stocks like Hindustan Unilever Ltd. and Nestle India Ltd. from a different perspective. “These are held by very strong hands who never sell in the market. There has been no dilution in equity for the last two decades, no fresh supply coming in, dividend yields are very strong and they don’t have governance risk,” he said.

India Going The Wrong Way?

India, Srivastava said, is going the “wrong way”, exactly opposite to the rest of the world, indicating serious problems ahead.

“In the last 72 hours, instead of there being a stimulus given to the economy, the central and state governments levied a charge on it. Instead of giving Rs 100 they are taking Rs 500 out of the system. When that happens it’s going to pinch every ones’ pockets, the purchasing power is gone from the system. The banking system which should have got help from the government in terms of fiscal stimulus was not there,” he said.

“So when you want to go this path which is reverse to the rest of the world, you are looking for a train wreck. It’s inevitable that it’s going to happen because now you have turned all policies upside down, stressed the system more. The stress will be taken by bankers and there will be NPAs or moratoriums,” he said.

“I quite concur the fact that the developments are very disturbing and if this continues we are looking at a much bigger train wreck,” Srivastava said. “Most banks will have to raise capital in the next 12 months and it’s going to be really tough right now. Unless there is a dramatic difference in strategising and genuinely putting money on hands of lower end, nothing will happen and we might even go and test the market lows again of 7,500”.

Watch the full interview here: