Churning portfolios quarterly, six monthly now the order of the day: Ajay Srivastava

What is your view on chemicals, names like given that the news from China on the Covid front is flaring up again?
See GHCL if you remember it was a story of restructuring, it was a story of demerger, it was at a very low PE ratio and they were demerging their textile business out.

And that story played out very well as investors made good returns. But the story is finished now. The demerger is almost in the last stage, price discovery has happened so I am not sure a pure soda ash story is one where you would like to bank yourself on. It is a pure commodity at the end of the day. It may or may not make money. So I think you just need to move out of it for the time being.

Speciality chemicals is a good place to be but you have to get your entry right in the stock. They are very expensive stocks and they have corrected but whether it is amines, whether it is speciality chemical like SRF I think you need to wait it out to get a good entry point.

There is no point buying at a high because they will give you very strong negative returns. I would still say give it another quarter, by the next year you should have a good entry point. Right now it is too expensive to buy any of the speciality chemical players in India.

Just a few days to go and we will be stepping into a brand new year. Any new year resolutions when it comes to the stock markets or any major regrets that you have for the year gone by?
I think a beautiful new year resolution would be that the best thing to do with your money is to spend it on yourself. So my mantra for the new year is to have money, spend and do not invest.

You are making that money on the stock market by investing to spend it. So I am sure that there has to be a strategy on that front, no?
Yes, but at some point of time, like this month to buy a stock in the market in India at historical 18200-18600 just made no sense to anybody.

As I said market found a reason to correct but 18600 is ridiculous for a country which is going to grow at 5.6-6% next year. Why would I do that, it is impossible, interest rate, REITs are giving me a 9.5%. So why am I going to bet with the index which is not going to give me more than 6-7%. So there are times and pockets where it just does not make sense to buy. It does not matter which stock is underpriced, not priced when market goes down everything corrects. So those segments at the time when you say okay you made some money now spend on yourself is a bright idea for the new year at least.

You will get a lot more chances to buy believe me in this market as time unfolds by January, February. You will see the impact of interest rates coming into the economy globally as well as India and it will be far starker than most people anticipate. Therefore high interest rates are going to bite and they are going to bite tremendously. Therefore spend your money on yourself rather than spending the money on stocks.

Given you are striking that cautious, what would be an ideal portfolio allocation at the moment, equity, debt, RIETs, InvITs, cash etc what would be the ideal mix?
See I will tell you InvITs, REITs at this point of time should be at least 25% of your portfolio for two reasons; one, of course, it gives you good returns quarter-to-quarter. Second is they are liquid and so very easy to get out and get into equities.

So therefore I think 25% in my view should an ideal place to be at this point of time. I keep saying that 50-60% is what should be in equities for anybody.

So I think 60% equity, 25% REIT and 15% cash will be a decent mix. You can sleep peacefully and exploit opportunities but the key is to book your profits. Cash in the bank is what makes the difference.

You talked about how sector churn is important, how one needs to be very nimble with it. IT has been one space which has been down throughout the year, does it now warrant a fresh look and perhaps something that we should buy at lower levels given the opportunity that you have been talking about?
IT is a sector which we keep telling our customers to buy directly as stocks. Do not buy as mutual funds and the reason being mutual fund diversify their portfolio. So in India two-three companies give all the returns in IT, but a mutual fund typically buys all six-seven shares because they need to diversify, etc, so you will never make money.

If you buy IT stocks and they have corrected quite substantially, you can buy some. I keep saying India story cannot be without IT and that is an honest answer. The good part is that it gives good dividends, good buybacks, good returns and investors can use the cash which it gives back to do what they feel like.

There is no better sector which has steady earnings and globally-sized companies. Market will go up and down but the need of IT companies is still tremendous.

So IT I would say is definite a buy. Investors must keep them in the portfolio but they should buy only top two-three names. We suggest buying the IT stocks not via mutual funds as mutual funds will always destroy your earnings because they diversify in IT. We do not need to diversify, we can be focussed and make good returns.

I am not recommending any names but I am just saying a good correction is a good place to be in but investors should hold the stocks not the mutual funds.

Every year I have seen or every 12-18 months the market style changes. Let us say this year it is value, before that it was growth at literally any price. There is a point in time when it was pure dividend yield. 2023 considering that same time next year we will be talking about elections, we will be talking about lot of internal events rather than external events. What style of the market is favourable, could it be value, could be it growth, could it be dividend investing?
The only style of market I like is the style which makes you money as investors. So the key point is how do you book your profits. It cannot be one of the two styles. You got to have a combination like let us take commodities – high dividends and potential growth rate but high risk investments. So I am not sure whether a corrected commodity stock falls in value, falls in dividend or which bucket does it fall in but certainly it falls in a bucket that is a critical thing and therefore you will make money.

So my guess is that the style has to be not related to the sectors or the way you classify companies. Style should relate to the fact that are you in a company which has got investing for PE expansion or investing for profit expansion and growth. I think that is the way I would divide the line as an investor because if you invest in a PE expansion mode concept then the need to book profit becomes more urgent and critical.

If you are buying because the company is supposed to grow and profit then you can take a much longer runway and keep investments going.

I would say just tick mark in your mind whether you are buying this for a PE expansion that there will be more buyers of stock and I am buying it cheap but not because profits of the company are going to go up or are you buying because profits of the company are going to go up or company is going to grow sales growth in which case your runway becomes longer.

So I would say style should be at this point of time to buy the growth companies on the sales line. Profit growth should be very difficult.

Sales growth is a better because if they can grow their sales in an economy growing at 6% then they will make profits eventually. But if they cannot grow sales then the profits growth will not last very long. So I would say sales growth style should be the best way for handling Indian market because companies who can grow sales they are taking up market share in an economy growing at 6% and that should be the best bet. I still say high growth in sales should be the number one criteria for style of investing in 2023 because those companies will be the winners in the market.

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