There is lack of trust among financial institutions: Sanjay Dutt, Quantum Securities

Living with volatility and uncertainty can be best avoided, says Sanjay Dutt, Director, Quantum Securities. That explains his preference for ICICI Bank over Yes bank, he told ETNow.

Edited excerpts:

You do not want to have a reputation like this that you talk to media only when there is fear and gloom and doom. You should come during happy days also.

No, actually it is better to come during these days. Because during happy days all the cheer leaders of Dalal Street, the big bulls and all the radio jockeys, etc, all of them are on the programme telling everyone to buy. But at this point of time, very few of them would come out and actually stick their neck out and take calls. So in a way, it is a good time to actually come in the market and try and figure out what is happening when no one has a clue really. It is good to stick your neck out. Get it wrong once in a while.

So what is happening? Why do not you tell us?

My sense is what you are seeing right now is nothing but collapse of the inter-institutional framework in India. Simply put in laymans language, there is lack of trust among institutions in Bombay in the sense a bank is not trusting NBFC, a bank is not trusting another bank and everyone is fearing the next default is going to come from the neighbour next door. So, in that kind of situation, the entire credit market, the lending-borrowing mechanism, the trust in the rating mechanism start to be questioned. As soon as that happens, fear sets in and there is an immediate flight to safety, which basically is nothing but flight to cash.

So if institutions start doing that, you can understand what individual investors will do. Mutual funds are trying to keep cash redemptions. NBFCs particularly tier II, tier III NBFCs are not able to access capital. If they are able to access capital, the cost has gone up very high. So it is kind of a jam that has kind of developed in the system which is basically nothing, but lack of trust between financial institutions, that is NBFCs, lending institutions, banks, etc. That has what really helped perpetuate the prices, which are being reflected in the equity markets also. It did begin some time back and now it is I think kind of peaking out.

Tell us as an investor what is it that you do right now? Do you buy this decline or do you just wait it out and see where the market finally settles and whether or not there are more can of worms like for instance an IL&FS, when crude settles down, when there is some stability coming in for currency? Do you wait for those parameters to normalise?

The only benchmark I see when I am investing is that what is the situation on the ground with real companies and I can tell you after speaking to people that good companies do not have any problem in accessing capital from banks, do not have any problem in selling their goods. Everything is running fine with them. Yes, there are patches where they are experiencing slowdown, but business is normal. Business is going perfectly okay on the ground with real companies.

There is no real slowdown in the economy. Yes, we do have an impact because of the currency as well as crude, but then all that gets factored into the prices and I think it is already factored into stock prices. So if on ground companies are doing good businesses, they are expecting the next few quarters to be better than what they have seen in the past.

I do not see any reason why investors should not be investing when things are 20-40 per cent cheaper. Yes, you have to be careful because there is going to be a flight to quality whenever fear sets in financial markets. Therefore, at this point of time, you got to be doubly sure of what you are buying in your portfolio.

You got to buy only good quality companies whether they are in financial services, whether they are in the core industries, whether they are in consumer durable, non-durables or consumption themes. So to say that this is the time to sell and run away and think about capital protection and those all kinds of jargon that are being thrown at us from newspapers and across media channels, I would simply say ignore them.

If you have any money, keep nibbling, keep buying on every fall. If you have invested, you must re-assess your portfolio. If it looks okay to you, you have good companies, just shut your portfolio, log out, change your password from wherever you are logged in into ET or MoneyControl or X, Y, Z and just let this storm go away.

Let us get down to specifics about where one should nibble and perhaps bargain hunt in this sort of market environment. You are saying very categorically that you prefer ICICI Bank and SBI to Yes Bank. Now, we have had an exclusive chat with Rajat Monga of Yes Bank, in fact Nikunj (Dalmia) caught up with him on Monday, give us your rationale here.

I am very clear whatever is in controversy, there is going to be volatility. I am not commenting on the quality of Yes Bank or anything, but yes we all know the stock is in the news for wrong reasons or right reasons. So as an investor, I do not want to deal with volatility. I do not want to deal with such kind of question marks or answers or explanations coming from companies.

When I have a big basket to choose from, why do I have to go where there is controversy at this point of time. Yes, I am happier losing something that maybe 50 per cent below fair value, but I cannot live with volatility and uncertainty. So I would buy an ICICI Bank.

In fact, I will give you an interesting statistics. I was looking the other day at banks like Canara Bank and PNB. Those banks have basically reached 2004-06 valuations and what you are trying to tell me is that if am I going to discount them at the same size even after all these problems on NPAs, am I assuming that the banks have gone back 15 or 17 years and they are never going to revive or these banks, particularly banks like Canara Bank with a reasonably or very large balance sheet is going to remain at a Rs 16,000-18,000 crore market cap while HDFC Bank is going to remain at Rs 5 lakh odd crore market cap, I do not know. I am leaving the answer to the investor. It depends on risk appetite.

You want to take a call, take a call and invest. But anything that is in controversy right now, anything that is grabbing headlines is going to have a huge volatility. So therefore as an investor, I do not want to deal with it because I cannot have information flow. It is not evenly available to everyone. So why do I have to go and dabble in Yes Bank as investor. I can trade. I can punt fair enough.

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