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(Interview Transcript)
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Mitesh Thakkar, VP-Private Client Group, Edelweiss, said the good part is that our markets are not falling much, the bad part is the lack of direction. "The markets are likely to break January lows and go lower. We will see intermediate bounces. The upside on the Nifty is likely to capped at 5,050-5,100. However, it will go down after that eventually. We will still see a timewise correction. It will be a slow fall to 4,280 and maybe even lower."
Midcaps are coming back in action but are still not seeing signs of a reversal, he added.
Luis Miranda, President and CEO, IDFC Private Equity, said the market has risen for the last few years and had gone ahead of itself recently
The domestic economy is driven by consumption, he said. "We don't see a slowdown in growth. The underlying growth story remains strong, especially infrastructure."
According to Miranda, fear of losses from forex derivatives have been over rated by the markets. "We expect more news flows on these products in the coming months."
Excerpts from CNBC-TV18’s exclusive interview with Luis Miranda and Mitesh Thakkar:
Q: The infrastructure space has been very active, there has been a bit of de-rating in capital goods stocks, IIP numbers have slowed down, are concerns on that space overestimated or legitimate?
Miranda: There has been as usual an over reaction by the markets. People are excited because the markets were up 200-points, tomorrow possibly it would be down. There have been few changes, inflation has gone up recently. But the underlying story is still very much the same. While in infrastructure there has been a lot of excitement, it still remains a very exciting space. It is good to see that even today the capital goods stocks are also doing well.
Q: Do you share the concerns of the market on stocks like L&T, and BHEL, which have got de-rated quite considerably over the last couple of weeks, that they will probably not be able to execute as much as the market expects?
Miranda: It is interesting. For the last two years, when the markets went up, no one ever asked me what’s happening.
The fact is that everyone was excited, we had a great run for the last few years, stocks went up, construction activities went up exponentially, infrastructure was booming. The markets just went ahead of themselves and what’s happening now to some extent is some correction over there. If you look at the underlying scenario, it is still very much the same. We have GDP growth growing at more than 7.5%. We have huge domestic markets that are still growing and are consumption-led. The demographics still work in India’s favour, entrepreneurship is booming. Yes, there will be blips over here as markets correct themselves, but I don’t see any sort of slowdown at all in the phase of growth, it is only a question of valuations and how the market are pricing it.
Q: What do you think is going on with all this talk of derivative losses and forex exposures? Today, Yes Bank came in and disclosed numbers. We didn’t see any big scars there. But the market is apprehensive of what might come out. Do you think those fears are overrated?
Miranda: They have been overrated. There clearly is a problem, we cannot hide away from that. Companies have got into a situation that they didn’t understand. Bankers sold products that they also did not understand. It is not for the first time that we have seen a problem like this. What is sort of different this time is the scale at which it is done.
We have had a couple of our portfolio companies which also come up with a problem that they hadn’t realised initially. It is good to see for example what happened with Yes Bank. They had no derivative hits over here. But we are going to see more news coming out because of the ICAI ruling, which wants companies to provide for mark-to-market hits now. That is going to produce some problems for companies’ balance sheets. Over the next month or two, we are going to see more and more news coming out from this.
Based on what I have talked to people, banks were aggressive in selling some of these products. The people who bought these products didn’t understand it, and signed a lot of declarations not knowing what they were signing. Well, they are all adults and people will have to take the hit.
Q: The one fear for the infrastructure space this year has been that many of these stocks will probably not find capital coming their way as easily as it did in 2007. That might stifle growth for a lot of the listed infrastructure plays. Do you agree with that assessment?
Miranda: When the markets were on a rampage, it was difficult for a private equity person to talk private equity to infrastructure companies. People have realised that there is some rationality which has come back into the markets. Prices had gone a bit crazy. In a way, it has helped moderate expectations. There was about USD 200 million worth of power deals that we just couldn’t complete last year because valuations that moved out of our range. We are now talking again on some of them. I don’t think it is necessarily going to have a major impact on their expansion plans. Capital is available. I don’t believe at all that capital is not available. The question is that at what price is it available? There are a lot of a private equity funds for infrastructure also waiting to be invested, and at proper valuations IPOs also will take place.
Q: How are technicals looking now, your peers have been appearing a bit confused about the direction, do you have a sense of direction?
Thakkar: The markets are good and bad. The good thing is that we have stopped falling as we have been falling for the last couple of months be it January, February or March. The bad thing is that we still do not have any direction to trade into. It is probably developing into a big trading range wherein not much specific activity is happening and you can see some bouts of activity happening in stocks, which get oversold, come back, and bounce back. It is only last few days that we have seen activities spread out to other stocks as well, some midcap interest has come back into the markets which is slightly positive but still the signs are not enough for a broad-based reversal.
Q: If you had to lay odds, what would lay it on ‑- the Nifty successfully climbing above 5,000 or going back and breaking that intermediate low of 4,500 established in January?
Thakkar: Over a period of time, we are quite negative and our belief is that we would probably break the January lows and might go even lower than those levels. In the meanwhile, we have already fallen off a lot, so a lot of stocks are kind of doing some base building. They are bouncing back from oversold levels. On the upside, bounce backs will keep on happening. We have seen markets broadly trade in range in February or so, the broader range was 4,900-5,400 in March. It came down slightly to 4,600 to 5,100-5,050 levels. In the short- to medium-term, the upsides would be capped around 5,050-5,100 levels. Over a period of time, we should again decline from these levels and probably test newer lows.
Q: What kind of lows would you have in mind? A chartist from CLSA was suggesting earlier that we could go down to the August lows of may be even 4,000 Nifty. Is that possible in your eyes?
Thakkar: Technically, yes we hold a similar kind of view. The basic idea comes from the fact that we have been in an uptrend for the last five-years starting April-May 2003. This fall looks like it might correct the entire uptrend. A good part of price fall has already happened, we have already fallen 25% from the January highs. I still think there is some kind of timewise correction left which may not be as severe as the first leg of fall that we have already witnessed. This will be more of a drifting fall and levels of 4,280 are one technical important level which we are looking at. Below that, we would re-test the August lows of 4,000.
Q: You spoke about some sectors getting oversold. From the capital goods pack, we have seen leaders like L&T and BHEL get smashed up quite a bit, they have seen a bit of a bounce. How do those technicals look there?
Thakkar: I was referring to those sectors when I said some stocks have been oversold. We have seen BHEL drop off a lot after declaring their quarterly numbers. The last two-days have been very good for the stock. There has been some kind of short covering. Stocks with good delivery volumes have started to move up. A similar case can be observed with Siemens and L&T as well. For an immediate bounce back, capital goods remains a good favourite. One might get around 8-15% upsides on these stocks.
Banks as a sector probably looks like that they have formed some kind of a base. A lot of banking stocks like Axis Bank, ICICI Bank, and SBI moved up very nicely today. The lows, which they tested in February, have been tested again or prices have gone back to those bottoms by just a margin of 3-5% and then again started to move up. Banks and capital goods are a sector, which might be in trading favour, if one takes a one-two weeks horizon.
Q: How do technologies charts look? Tuesday is Infosys, are you getting any sense that the sector has bottomed out?
Thakkar: We don’t have a good conformation of stocks bottoming out. In fact, we have been watching Infosys, TCS, and Wipro very closely. These stocks had long back stopped participating in the last leg of the upmove, which we saw in the last quarter of 2007. Since then, they have corrected quite a bit from their tops. They have bounced back strongly, but Infosys needs to move above its immediate levels of around Rs 1,520, which is a supply area for this stock. Above those levels, we might see some more trading upside. I am not sure about the long-term picture and whether these stocks have bounced back. Given a fall of around 30-40% from their highs, 8-12% bounce backs will keep on happening and that’s what we are seeing in these stocks.
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