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According to Shashank Khade, Kotak Securities, a lot of Indian investors who have been holding stocks with a hope of actually regaining their prices back are the ones who actually are now beginning to succumb to the pressure of correction.

But he says that this is a best time to start buying into equities aggressively. One should get into companies that have certainty of earnings, cash flows and where one can safely predict the earnings for the next two-three years, said Khade.

Q: What did you make of the inflation numbers that came out today and the Finance Minister’s stance that he would use interest rates as his tool to control inflation?

A: I think inflation had to go up primarily because the price of oil basket actually has been increasing. Commodities seem to be a bane right now. On one end lot of financial investors are cheering the rise in commodities, on the other end the user industry is suffering substantially. A lot of economies seem to be under pressure because of slower growth and also there is higher inflation.

In all of this we believe that commodities need to correct and they may correct at a point, given the way the weakening demand position would come in. Inflation will keep going up so long as crude continues to march.

Q: We have seen that the market inspite of fairly reasonably positive circumstances is not able to hold on to its highs? What is the advice you are giving your investors at this point in time to use dips to buy or use highs to sell?

A: We on the portfolio management side have investors who are long-term investors. Most of our products are with three-four year perspective, so we are looking at buying stocks right now. I think given three-four years, one will probably see a much brighter scenario and this is the time to probably take risk and not to shy away from stocks thinking the risk is high.

Psychologically, investors are unnerved. I don’t think these are times when investors will want to take risk having seen carnage in equities in the last two months. But we believe this is a best time to actually start buying into equities aggressively. I don’t think anyone can call a bottom and probably say that this is a level where definitely the market should bottom out. Finally it’s a question of valuations and if one sees a stock that has certainty of earnings and cash flows and can safely predict the earnings for the next two-three years, then one can definitely go ahead and buy.

Q: Do you reckon that would be the kind of damage we would see before things start getting a bit better?

A: If you really look at and analyse the correction, there were three legs of the correction. Firstly, there were excesses in F&O that got corrected in January. Secondly, there were excesses in the primary market, which got corrected last month. In this month’s correction, a lot of Indian investors who have been holding stocks with a hope of actually regaining their prices back are the ones who actually are now beginning to succumb to the pressure of correction.

Already in the last ten days, I am actually getting a chorus in terms of level of 12,000-13,000 where the Sensex can actually bottom out. I would love to buy this markets at 10,000 why do I stop at 12,000 and that is where it will look extremely cheap. So I really do not know when this 12,000 and 13,000 will come in. But my sense is that it is clearly time to really start buying into equities.

Hereon, it is going to be a market that will be led by specific stocks rather than specific sectors. India is a well-known story. You need to really buy stocks that you will like in the next two-three years. India is a growth-oriented market. People fish for growth stocks out here. So if you get your growth stocks right and if you are getting them at proper valuations then you should go ahead and buy into them.

Q4: If you can tell us what would be the right stocks that one should fish for at this juncture?

A: One thing you would bare in mind is that we would be prejudice to that extent because we would have exposures to certain stocks in our assets, which we manage. The first sector is infrastructure and financial services. These are very large domains. There are multiple stocks that one can really buy into. In infrastructure, we believe that you need to buy into companies that are unique in terms of assets and are critical infrastructure companies. Those are the companies where one sees profitability already and which can clearly show growth in earnings and can grow at a substantial rate.

Secondly, the one who is actually going ahead and implementing infrastructure for others, not necessarily taking the ownership of an asset as a risk. So these are the two types of companies. To talk about some companies in the first category, we believe companies like Power Grid Corporation of India, Mundra Ports, IRB Infrastructure are type of companies, which are uniquely placed in terms of an asset quality.

These are the companies where the cash flows are by and large certain and all one needs to do is probably buy them at the right price. I think the mistake that a lot of investors did earlier was probably buying companies at not the right valuation. But we believe these sorts of companies are coming at proper valuations now.

Let’s assume if risk aversion is the theme this year and people are not looking at taking higher risks then there are enough defensive stocks in the markets. There are companies, which quote between five-six times EV/EBITDA, companies like Tata Tea, which probably has a perception of a commodity stock but actually is a branded consumer play. These sorts of companies quote at five-six EV/EBITDA while global food and beverages companies are quoting between 10-15 times. So these are certain disconnect which we see and of course in this sort of stocks we have build our exposures largely.

In telecom, we like companies like Tata Communication, which is a company that is a global data and voice carrier and also is an asset play to some extent. We believe these are sorts of companies that are under owned by the markets.

Disclosure: We have an exposure to all sectors of the market. Personally, I have no interest in stocks/sectors discussed.

Source: Moneycontrol.com