Global mkts dangerously poised: Kotak Secs

Ketan Karani, Vice-President Research, Kotak Securities, feels the markets are not near the bottom. "They maybe in a bottom formation process, as there has been a sharp correction from 21,500 to 12,500. Near 12,500, some of the critical levels of 12,380 are there. If they get violated on the lower side, the index might see a substantial correction.'

According to him, Fannie Mae and Freddie Mac have a total liability of USD 5,000 billion, which is almost 60% of the US national debt. "This is going to be disastrous for the US and global economy. Countries like Russia, China, and India are holding these kinds of debts. So, they are going to take huge deep cuts. We might be facing a world order which is going to be hugely changing. Crude trading at USD 135 per barrel doesn't mean that things are going to be great now. Things are going to be alarmingly, dangerously poised for the entire global economy."

Excerpts from CNBC-TV18’s exclusive interview with Ketan Karani:

Q: Will this hold the kind of bump we have seen? Do you see this as an indication that we are very close to the bottom? Do you think that this is just a decoy?

A: It is very difficult to predict the bottom in any market and to identify a bottom is one of the most dangerous and hazardous jobs to do. If you look at the way things are panning out and markets are moving up, it clearly sees that the volatility is too high. So, the markets are not near the bottom.

They may be in a bottom formation process as we have corrected sharply from a top level of 21,500 to 12,500. Near 12,500, some of the critical levels of 12,380 are there.

If they get violated on a lower side, we might go for a further substantial correction from that level. Let us see the reasons for this market to go up.

In USA, we had a 276-points rise. But I don’t know how many people realise that the SCC came out with a ban on short selling in the cash market and in the financial stocks the ban is going to be from July 21.  A lot of these stocks moved up by 30-40%. Wells Fargo was up by 33% while Fannie Mae and Freddie Mac were up by 30-35%. A lot of short covering was seen in that market. That is only a technical throwback offer.

Our markets are also in a corrective phase and whatever we are seeing today is only a throwback and not a trend reversal.

We will like to see where the better bottom formation process is continuing. We are seeing lower bottoms and lower tops. So, it is very difficult to take a call whether a bottom formation is there.

Fannie Mae and Freddie Mac have a total liability of USD 5,000 billion. That is almost 60% of the US National debt. So, this is going to be disastrous for the US economy.

We might be facing a world order which is going to be hugely changing. So, globally what we see in these markets is not in a bottom formation process as of now.

Some relief has come from crude. But we should not forget that at USD 110 per barrel we were very scared about crude. It is at USD 135 per barrel and from USD 147 per barrel it has come to USD 135 per barrel. That does not mean that things are going to be great now. Things are going to be really, dangerously poised for the entire global economy.

Q: What is the advice to put say 90% with Money Market Funds (MMFs) and just put 10% in equity fishing or not at all?

A: Some of the stocks have corrected substantially and one can start putting 5-10% of the money in that. But otherwise, as they say cash is king.

Q: You are probably being bullish on metal stocks. Metals have been at a corrective phase. What is the outlook on metals in general and Tata Steel in particular?

A: Metal stocks have corrected sharply in the last 15-20 days globally. There is a perception that US is slowing down. China is slowing down as is seen from the GDP data which came out. So, there might be a possibility that metal demand might come down.

We see metal prices firm to positive over the next 6-8 months. They can correct over a period of time. But the stocks have corrected substantially sharply.

Further correction can make them investment grade again. But we would not like to guess whether they have became an investment grade or not because we don’t know what kind of corrections can come in metal prices globally.