Mkts need time to factor in crude prices: Alchemy

Q: Do you think nerves have settled and we have seen the worst for this year?

A: Not quite, I think the volatility factor in the market place is clearly not out as yet. We are going to go through in the next six-nine months struggling to trade within a range with sharp volatility. But the good in bad news is I do not think the market is going to tank significantly nor is the market going to run up significantly. So we have are caught in a range because of some 'Made in India' factors and also because of some global factors continuing to show heavy headwinds in the market. So I do not think nerves are settled in the market place.

Q: What are you hearing about fund interest into this market and how concerned investors are you about the way currency has moved this week?

A: Institutional investors within the country have been deploying some of that. You have seen that possibly accounted for part of the relief rally through the month of April. FII flows are still slow, currency is just one of the factors, there are larger macrofactors plus things happening in their own homeland. I do not think at the margin I would attribute too much to the currency movement.

Q: If the call is we are set up for a rangebound month, how would you approach it? Is this a good time to just take some money off the table and let this month ride through or do you think it is a good time to start deploying some of the cash particularly for some of the domestic guys that might have it to deploy?

A: I think the backdrop for the next six-seven months is a bit like the latest fever in the country today IPL-T20. I do not think you can make sweeping statement - this is a strategy for almost like a ball-by-ball play. For a long-term investor this is a market to selectively start deploying because the market has still not found the bottom. We will know the bottom after it has happened but there could be some very good opportunities to buy in. So if you were a long-term investor for the next six-seven months, you would keep buying the stocks and sectors you like and accumulate a position. That is how I would play the market for the next six-seven months.

Q: You said the market has not found its bottom, what are the top of mind or two-three key risk factors which could peg us back to retest our earlier lows or even lower in your eyes?

A: I think two-three things, one is we have been given another shock with respect to oil; market needs time to digest that, factor that into a price. From the global standpoint you need to get maybe some more clear indication of the issues in the US and talking specifically with respect to the financial services sector in the US. In the domestic market there are some measures afoot, some good some not so good, with respect to taming inflation you need to give that a little time.

So I think these three-four things will have to get factored into the market for the market to say that the worst is behind, but it is not going to be a bottom and a snapback. It is going to be a longish bottom, which is why I said that for most of the remaining part of this calendar year, you are going to have this market struggling to find the bottom and trading thereabouts.

Q: How high a probability would you attach to the prospect of this market going back and retesting the lows from which it bounced? Do you think it is probable?

A: If you say the range of this market has put a midpoint around 15,500-16,000 and put plus or minus 10% on either side, then there is a good probability that the market could test the lows of 14,800-14,900 before it started climbing back. But it is not going to test it once and come back. I think it will come close to it several times, so you are going to see a fairly volatile and spiky market, up-down over the next few months.

That is why I said that if you are long-term investor, this is not a market I will exhaust all my ammunition in one go, but I will keep buying at different points of times almost like military discipline, keep buying so that over the next six months I build a nice little portfolio.

Q: There is also a body of analysts who feel that for emerging markets by and large this year is going to be one of a peripheral performance they will only do what the mother markets as they are called will do, would you agree with that? Do you think we are more or less going to mirror the trends we have seen in global equity markets?

A: I think to me it is almost a no brainer, I think we could most certainly end 2008 as a negative return year, the first after 2002 when in a calendar year the market has delivered negative return.

I think before we get into the decoupling phase, there is this coupling phase that has to play out because it is not just the mother of markets, which is the US, but the mother of the mother of markets, which is the housing market in the US, that is at the fulcrum of the problem. So till you have some serious clearance of headwinds starting there, I think global markets are going to continue to have the impact.

The decoupling story very well starts thereafter on the rebound where stronger markets, stronger countries, stronger corporates and India can make a case that they will start performing better when markets turnaround. 

Disclosures:

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