Mkt to rally if inflation falls below 6%: PN Vijay

Vijay Bhambwani, CEO, bsplindia.com, said it’s likely to be somewhat of a psychological pressure point for the bulls to defend 5,000 levels. "If we close below this, we could have a possible scenario where you could be looking at 4,900-4,925 thereabouts."

Excerpts from CNBC-TV18’s exclusive interview with PN Vijay:

Q: This week has turned up as one that’s inflicted a bit of damage on the market?

A: Yes, more than a bit of damage. The nice trend that we were seeing has been severely jolted. This week, inflation is keeping everyone worried. Inflation for week ended April 26 came in at 7.6% earlier in the day. The silver lining is that the pace of rise has practically stopped. On a sequential basis, it is turning out to be a bit flat. Hopefully, inflation should be coming down in the next few weeks and then one could see a revival. 

Q: The earning season is also virtually behind us, do you think we will be in this kind of an up a bit, down a bit kind of a market for a few more months rather than finding a clean trend?

A: Earnings have not made any great impact. They have been good and slightly negative in parts, but on the whole it has been okay. Some sectors that we were worried about like banking has come out all right.

The key is inflationary interest rates. It is surprising that liquidity in the system has held up. Bankers are not going short of cash. The call money is also fairly stable which means the money is available in plenty though it is getting a bit expensive.

If we get inflation down to 6%, then we will definitely rally. I am sure about that assuming that the monsoon is good. So, the key is to watch for this macro figures and that should come in about may be two weeks from now.

Q: How do you read the sharp downtick in the rupee and what it has done for stock market sentiment or is it the other way round?

A: It is trading slightly weak, which is not too bad, but a falling rupee is bad. Once FIIs decides that the rupee has fallen enough, they would probably bring in money because they will get more rupees for their dollars.

The rupee falling to a certain extent is a global phenomenon. The dollar has had a sweet ride even against the euro, which is one of the strongest currencies in the last one month. So, it’s more the dollar strengthening and this may be part of the government policy. It might be thinking that the rupee is a bit too strong, so they let it ride a bit. But I think they will rein it in now, they will keep it around 41. But this definitely had a slightly negative affect on sentiment. But it doesn’t worry me too much.

Q: What have you made of the selling pressure in refiners today because you can understand what’s happen to oil marketing companies, or OMCs, but why these guys?

A: Refineries are making good money. If one sees the results of Cairn India, Chennai Petroleum, etc which are into refining, their margins are very strong because crude prices are strong. This is because of people taking away profit because this is one sector where people have made money. In the general negative sentiment that’s been there, they have booked profits. But this continues to be interesting buys with strong EBITDA margins as long as the oil prices stay where they are. 

Q: What do you make of this reversal in many of the midcap names that had recovered so well from their recent lows? Do you think it is an opportunity again or could this slip more?

A: On momentum stocks, it is very difficult to say. They didn’t move almost towards the end after the large ones and midcaps had moved. In the midcap space, especially in those industries where we are seeing good earnings momentum, you should use these opportunities to pick because not long ago we didn’t think Nifty will come down to 5,000. At this level, people should be picking stocks where the profits are about 30% growing. There is no doubt about that.

Q: Some of these sectors that are facing continual governmental attention or interest like steel in specific?

A: You should buy steel because the government attention is sort of going off. They got away pretty okay. I was expecting the government to come down a lot more heavily. They had hiked prices by about Rs 4,000-5,000 depending on flat or long products a couple of weeks ago and then they brought it down.

So, they are okay. The attention on steel majors is now gone. The government has done whatever it wanted to do. They will sit back and watch inflation slowly going down, because they are very confident that food prices will crack with the huge procurement.

So, the way steel has fallen, especially the top ones like Tata Steel and SAIL could be bought. We are already seeing some activity in Sesa Goa and Gujarat NRE, which are sort of proxies to the industry. But these two look good actually.

Q: Do you think there will be a partial loss of the recent gains of the rally that we saw from the lows or will we go back and test the levels where we came up from?

A: We may lose a little bit more. Next Friday, should actually see a major change in sentiment. At that same time last year, inflation went up a bit. So, we might see a very good inflation figure that may turn things around. Right now, people have made much money shorting the market. They continue to short it and there isn’t any good news to take it up again. I will give this a week, maybe a bit more of correction. We are on course and the market will have very good strength at that time.

Q: Aside from inflation, what do you watch for next week in order to turn sentiment in either direction?

A: Nothing really. Global markets are factoring all the discounts, some positive and some negative. Their impact on Indian markets is less and less. For example, in the US we have got fairly good retail sales, Wal-Mart came with some very strong in-store retail sales. So, it is sort of 50 plus or minus globally.

India has become the big concern because inflation is still high. So, I would look at anything that affects inflation negatively or positively. That is the key to the revival of our market. If we get a figure that makes people globally feel okay, India is back to 8%. There is nothing to worry about these guys, then all the old favourites will come back, like the BHELs, and L&Ts. The way people talk will totally change overnight. We have seen that happen so often. Chartists will get bullish etc. We have to wait for that figure. There is really nothing else at this point in time.

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