Sangeeta Purushottam, Head-Institutional Business, Religare Securities said the markets lack clear triggers and economic factors are a matter of concern. The market is looking for direction and likely to be rangebound for the near-term, she added. 

She told CNBC-TV18 that the biggest concern is inflation, which will keep interest rates on the higher side. It will affect demand growth due to a fall in consumption, she stated.

According to her, there is a need for the market to stabilise to see a rally in midcaps and largecaps are likely to lead. 

With respect to the rupee weakness, she said that all export-related sectors will benefit and there is a need to see how long it lasts.

Excerpts from CNBC-TV18’s exclusive interview with Sangeeta Purushottam:

Q: What have you made of the week?

A: The month actually has not been too bad, given that we have had results, which have come out broadly in-line with expectations. A large part of that is in a way behind us. So, we are likely to enter a zone where there is going to be a lack of clear triggers in some ways. The worries on inflation and on factors like growth etc. are returning to the fore and that is what is going to keep markets swinging between hope and concern. So, we are still in a phase where the markets are actually going to be looking for direction. We will be in a rangebound phase for sometime to come.

Q: What is the chance that the market will get nervous and revisit the lows that we had in March. There is one camp that believes that it is a very doable possibility?

A: There is a fair amount of consensus in the market among a lot of market players. It is likely to retest earlier lows or at least get close to that. The rally shows that a lot of the concerns still don’t seem to be completely priced in into the valuations.

Analysts are still at a phase where they have started to downgrade some earnings. The only thing that goes against that is a lot of cash still waiting on the sidelines. There is a lot of consensus on the fact that the market will go down and markets tend to prove consensus wrong. So, that is the only silver lining that I see at the moment. There seems to be a lot of nervousness in the market and cash waiting on the sidelines.

Q: From an equity market perspective, how have you read the way the currency has been moving? There has been a meaningful rally in technology. Do you think from here it might be good for some more?

A: If you take a look at the entire newsflow in technology and not just the depreciation of the rupee, it is actually turned positive. The valuations had bottomed out because we were looking earlier when some of these stocks were at their lows. They were at levels which were about 4-5 year lows and then after that there has been a spate of good news starting with guidance which was a tad above expectations.

Also, there is the fact that the tax rate would come back to normal as well as the depreciation of the rupee. The companies themselves are very well managed. They have been market favourites in the past, which is reviving interest back. This sector may have the potential to surprise. It may not just end up being a defensive sector alone as we go further into the year. Today it is really seen as a good defensive and that is what is reviving interest.

In the short-term, there is limited upside because we have seen a good rally in this sector. But if it falls, there would be people coming in to buy. Over a medium-term, it could actually do average.   

Q: How would you play the entire oil and gas space? Have you been looking at some of the frontline stories or would you rather play it through the allied oil exploration stories perhaps?

A: The allied oil exploration stories are clearly among the safer bet, given the risks that we have seen of government intervention, particularly in the PSU companies. Also, the oil exploration stories are not necessarily exposed directly to either refining margins or it is more of a trend story. The near-term fluctuations in either oil prices or oil margins don’t really impact them that much. So, there is no doubt on that.

Amongst the rest of the pack, it is the pure refiners, which would seem to be safer bets because they were not having to pick up part of the subsidy in oil. But that is something that has been a question mark over the last few days.

Q: What have you made of this sudden burst of interest in the base metal space? They were all on fire today: aluminium, copper, and zinc. Is that a pocket you think that might start seeing buying interest?

A: In the whole commodity space despite movements, the price is something where it is really hard to take a bullish call right now. There could be a surprise coming down. The price turning down is the overall slowdown that we are seeing across the globe that remains. So, in that sector the risk to reward is not terribly favourable. So, I’d be sceptical.

Q: What is the big threat for the market right now? Are you worried about the way currency has been moving and hence flows might move that way? Do you think crude and commodities will remain the worrying point this month?

A: The biggest threat is inflation because it is holding back interest rates and more it is going to show up in margin compression in earnings. Therefore, even in sectors where topline growth or demand is potentially strong, it will not really come down very much.

Higher commodity prices and inflation is going to skew margins, which will start to compress; a clear threat that will effect consumption. So, the consumer durable sector or autos end up being under pressure because of inflation.

Q: Over these past few days, the midcap market has been struggling a lot more. If participation remains so low, do you think there might be this period of pain for the broader market, regardless of what the Nifty and Sensex might do?

A: Yes, that is likely. Every time we have seen midcaps run up, it has been when people start looking for value in sectors in the largecaps that have already had their run. So, that is what propels interest in midcaps amongst institutional investors and typically retail investors are the ones who tend to get into midcaps.

So, overall market volumes do play a bigger part in the movement in that space. We really need the market to stabilize and volumes to start picking up, before we would see a midcap rally and the largecaps will lead.

Q: What have you made of the kind of positive impact pharmaceuticals might have because of the currency?

A: All export-related sectors will benefit from the currency, which is fairly obvious. The important thing is how long does that benefit remain. The rupee will keep depreciating. You cannot take longer-term calls based on the currency movement that we have seen in the recent past because that could reverse quickly.