Pro-growth measures by Government to drive market sentiment: Dipen Sheth, HDFC Securities

ET Now caught up with Dipen Sheth, Head-Institutional Research, HDFC Securities, for his views on the market and some stocks. Excerpts:

ET Now: The moot point is earnings. So let us start with that. Everyone on the street is disappointed with what L&T has reported. What is your view?

Dipen Sheth: I disagree.

ET Now: Why?

Dipen Sheth: The moot point is not earnings. I agree with what you say about L&T though. But I completely disagree that it is earnings that should be looked at very closely.

Obviously, earnings matter. They tell you what is going on in the system. But nobody who is long on India is really interested in your report card of Q1 FY15. I hate to sound philosophical, but it is not important where you are at the moment; it is where you are headed that matters.

We have a stable government with a majority. It is pro-business, pro-economy and pro-growth; ‘sabke saath’ as the punch line proclaims. So, when you look at 1.2 billion people finally getting their act together, it does appear good. We have been showing this promise every 10 years or so since 1991.

Therefore, I do not think it is the Q1 results that matter. These are just little bubbles and blips in an otherwise fantastic story. The overall fantastic story is what the sovereign funds are looking at. That is what the long folks will be looking at.

We are now looking at an economy that is going to be on a roll for 5 years. It may even stretch to 10 years if this government gets another fresh mandate. There is a little bit of a short-term mess-up in terms of what the government has done. To be frank, I would not even call it a mess-up. It is just some kind of a consolidation.

Election campaigning is all about ‘poetry’. We are in the ‘prose’ phase right now. So, give them a break. They will get the act right.

ET Now: As for the markets, do they seem to have patience in them? I am saying so because typically markets always look at the short term and then make the opinion for the medium and the long term. What is your view on this?

Dipen Sheth: Markets are whimsical. I do not really care if they have the patience or not.

It is the investors who must have patience.

Six months or 12 months ago, this was a ‘sell on rises’ market. Now I am firmly convinced that we are a ‘buy on dips’ market. So, buy aggressively on dips.

The important point is that dips may not really materialise. But if they do, consider yourself lucky. I would be very happy if the markets fall. I am actually thrilled that L&T in going to witness some weakness today. In our model portfolio, we put double the weight that it has on the Nifty. It is going to cause us a few problems in the portfolio, but it will be only for a few days and that is okay.

ET Now: What is the market going through at the moment? Is it a speed-breaker, or do you think it could turn out to be a pothole? Could we see a significant correction from the current levels?

Dipen Sheth: I hope and suspect it is a speed breaker. There is a little bit of storm brewing globally as well. US Fed chief Yellen is going to make some noise today. There is some chitchat around that whether we will see a little bit of tightening in the monetary policy print there.

The Middle East — whether it is Israel and Gaza, the ISIS in Syria, or the blowout in Benghazi in Libya — is in turmoil now. All these things do have an adverse impact on India’s external account. If oil goes up markedly, we will have a serious problem in our hands, given our 75% dependence on oil imports.

Our huge gas imports also have to be taken into consideration. If those prices move out of whack, we could well have a double whammy like the one we saw in August last year.

ET Now: Then there is also the issue of currency weakening, which has already started.

Dipen Sheth: Yes, the cards are kind of trundling along. I can see a speed-breaker on the road. But I must say that the driver has been decent so far. There is every indication that we are in good hands, that we are being driven by good people.

Can that change? Yes, it can. There are some rumblings around minor blips and stumbles on policy — whether it is appointment of judges or behaviour at the WTO. But the larger sense that I am getting from here is that this government is going to take a while to settle in. Look at the way they postponed the gas price hike decision. Also, look at how there was no big bang in the Budget.

So, they are getting their act together, they are not in a hurry to go out and prove something to the world. Let us understand this is a test match, and not a 20-20 one. The problem is, we are used to instantaneous results.

I would hope for this government to get its act together over a slightly longer period of time. In the interim, we are going to be susceptible — or shall I say mildly vulnerable — to situations like these. That should make the long-only very happy. And no one is complaining.

ET Now: But is 7850 the best score for the year? Or do you think there is more to come before this calendar year is over?

Dipen Sheth: The calendar year has still got five odd months to go. I am sure we will see a level of below 7500 perhaps before we test 7800 again.

The shorter the timeframe you look at, the more difficult it gets to predict the markets. The markets are completely at variance with what you see in the other human affairs. It is far easier to make longer-term calls on the markets. That is the way I would see it.

I would be very happy if retail investors master the guts to come back into the markets. That is happening on the sidelines right now; it could speed up if a lot more inflows would come into mutual funds. They have been net sellers even in this rally. That is tragic. People have lost faith in equities and people outside the country seem to have much more faith in our equity markets than our retail savers.