Bullish on largecap IT: Amit Dalal

The bulls rode the global wave to post a strong rally. Easing crude prices also boosted sentiment. The Nifty closed at 3,947 up 131 points, while the Sensex shut shop at 13,112 up 536 points.

Amit Dalal of Amit Nalin Securities said the probability on a sustained upmove is low right now because the US still has a lot of pain ahead. However, Dalal was quick to add that he doesn't see any forecast till 2010 telling him that the markets are going to go back to March 2000 levels. "So, the market has already discounted a considerable pain behind it."

He feels the largecap IT space would be a safe haven for investors. "If we believe that inflation is going to be a factor which is going to make all the decisions in terms of earnings growth forecast, and is also going to impact our currency, then the only place for a foreigner to hide is technology. You have valuations today which are the cheapest in a very long time. I would definitely bet on largecap technology stocks rather than midcaps, because midcaps have currency and business penetration problems. Global markets and the global business community is not ready to take up new vendors or new smaller companies from India."

Excerpts from CNBC-TV18’s exclusive interview with Amit Dalal: 

Q: Are you getting the sense that the market is making some kind of a pullback or a base building move?

A: All the bad news comes together over a period of 2-3 months and maybe the good news, which will start with the price of oil, will continue with the July 22 vote of confidence going in favor of the government. This will bring some support to the bulls or to the market at lower levels. But we are surrounded by risk or a very big event around us. So, one has to be cautious.

Q: The problem with these rallies is that we have not seen a sustained upmove. There has been one strong day. But even in a pullback rally, we have not managed to pull that a little bit longer. Do you think that might happen now?

A: We are definitely in a period where we are surrounded by macro fundamentals and a situation of global fundamentals, which has gone completely against equity markets. Unless, there is going to be a huge turn for the equity markets for the better, we are not going to have a sustained market upmove.

Right now, there does not seem to be any cause for it because the US still has a lot of pain ahead of themselves. They still have to give some idea on how they are going to structure their full subprime problem.

I don’t see any reason why you can have an upmove in our market which would be sustained in a long period and give a smart return. On the downside, people have started expecting the worse already and are expecting 10,000 or 11,000 for the markets.

Our earnings growth will come down. But there is very little for people to say that earnings growth is going sharply to negative. I don’t see any forecast till 2010 telling me that we are going to go back to March 2000 levels. So, the market has already discounted a considerable pain behind it.