Mkts may test lows if crude rally goes on: Emkay Share

Q: Are you recommending IT to clients?

A: IT is a very decent play and we have been bullish on IT. The primary reason being the way the dollar-rupee is behaving. So, there are positives like the guidance given by Infosys about the growth that they expect in the second half of the year. Valuations are also reasonable, under ownership is also high. We believe that with all these factors, percentage appreciation could be decent from here.

Q: We saw quite a bit of selling in the cash market through last week on the FII side. What are you hearing from the institutional desk? Are people actually cleaning off a bit, taking profits off the table?

A: We have seen that some long-only funds have used this rally to par their position. There has not been any hedging of positions, but actual cash delivery selling which has taken place from some long only fund. It is natural after almost 15-17% upmove on the Nifty from 4,600-4,700 to 5,300. So, some funds have taken money off the table. 

Q: If your sense is that the market is likely to go back towards the lower end of its trading range, where would you cap the upmove? Do you think 5,000 remains a ceiling for us or are we going to even attempt a bit higher this series?

A: I believe that the mid-term range is at 4,600-5,300. The sentiment if it improves, or if crude oil prices are controlled, in the near-term then it can go up to 5,200-5,300 because when one enters that territory the valuations, also based on earnings estimate, move more than fair value. So, the market should move in the range of 4,600-5,200-5,300. I am not saying that we are capped at 5,000.

Q: How are you approaching steel now as a sector?

A: We are bullish on the steel sector which is seeing high international prices. For the next six-nine months, we believe that the steel sector should give decent return despite the export duty and rollback of prices etc. It is more a function of demand and supply and this is a function of international rather than domestic. We are very bullish on Tata Steel and Sesa Goa both from iron ore and finished product prices point of view. So, we are recommending Tata Steel as an outperformer.

Disclosure:

It is safe to assume that my clients and I may have an interest in the stocks or sectors discussed.