A mix of fundamental and technical factors are dragging the market down, Ajay Srivastava, CEO, Dimensions Consulting tells CNBC-TV18.
“It is not as though the fundamentals have given away overnight; it is also that the structure of the market has changed,” he says.
“Lots of margin calls, lots of people getting out, lots of people failing to meet their obligations on the midcap stories that they have bought into,” he says.
He says the perceived insularity of India has been tested over the last three days and found wanting. He says there are problems in the global economy and India cannot remain isolated from it.
“Indian investors must accept the fact that we are part of the global markets, no matter what the politicians tell you, what the central bank tells you,” he says.
He says it is still not time to bottomfish and sees the Nifty falling below 8000. According to Srivastava, a GDP growth of 6-7 percent and a price earnings multiple of 30-40 times is just not sustainable.
He feels the Indian market will struggle as long as the mood in global markets remain bearish.
He advises investors to steer clear of midcaps, and says buying them now would be like catching falling knives.
“Our economy is not geared to address the valuation issue with those stocks; there is no turnaround happening. It is going to get worse; it is going to get more ugly,” he says.
“Most people thought ugly is over, but watch what happens in next 6-9 months to these companies, their share prices and the economy. I think you got to be safely out of the place,” he says.
And while mutual funds are receiving steady inflows, Srivastava is not comforted by it. According to him, increased retail inflows indicates a correction ahead.
“This (retail) is money chasing returns, not money investing for returns,” he says.
He advises investors to stay invested in pharma and IT, and sees both sectors outperforming despite problems in the economy. He is more bullish on pharma, but expects IT also to do well as the rupee could weaken some more against the dollar.
Srivastava recommends sticks to the leaders in sectors that are doing well.
“The leaders will always win the battle, and I think that has been borne out in this carnage,” he says, adding, “I am not getting my good stocks at a good price even today, because they have not fallen enough.”
He tells investors to keep away from stocks that are linked to a recovery in the market. He says government response to the problems in the economy has been inadequate, and that is a key risk for the market.
Srivastava is also bullish on the telecom sector, as he feels this sector will be able to pass higher costs on to the consumer.
He is not bullish on FMCG despite the sector’s defensive nature.
“It (FMCG) is a place to hide, but a very expensive place to hide,” he says, highlighting their price to earning multiples of aroud 50.
He is also bullish on liquor stocks as he does not see too much competition for the incumbents.
Interview transcript to follow