Mkts to correct 5-7% from current levels: Dipan Mehta

Dipan Mehta, Member, BSE & NSE said the extent of today's correction does seem to suggest that this leg of the rally seems to be over.

He expects the markets to remain volatile based on newsflows. "We should expect a lot more volatility because the flow of news may get a bit disappointing. Usually the results, which come out towards the end of the result season, are not that encouraging. So, this is the last week of the results season which we need to deal with.  Even the kind of fall that we saw on the US market yesterday was quite disturbing. There is fresh round of negative newsflow coming in from there on account of the housing market and subprime losses. So, we had a good time for the past week or so and now it may be a trying situation for market players next week."

According to Mehta, the markets could see a correction of 5-7% from these levels, if there are some sharp moves from RBI  and if they take certain steps which the market has not been discounting or factoring in. "So, that possibility also exists as against the threat of further sell off in global markets as well as the oil process. We are back to square one in terms of other issues, which we are dealing with, like high inflation, interest rates, and slowdown in corporate profits."

He feels retail investors should wait-and-watch till this earnings season is over and done with. "Then, we have the RBI policy meet as well. So, some major events are coming up which one needs to understand and have them discounted in the market before one makes a call. These are good levels to take a hard look at the portfolio and get out of some stocks, which will be threatened in case oil prices go up further or inflation and interest rates remain high. These are good levels to do some kind of a reshuffling and maybe some other companies may come out with a poor set of numbers. One could exit out of that and go into companies where there is earnings visibility."

Excerpts from CNBC-TV18’s exclusive interview with Dipan Mehta:

Q: Do you think the bear market rally, which people were talking about is over? Do you think it is just a bit of mild profit booking after the 17% rally that we had seen?

A: The extent of correction that has taken place today does seem to suggest that this leg of the rally seems to be over. From the nearly 500-points correction one would conclude that this bear market rally is over.

The earlier bottom of around 3,800 and 12,600 should not get violated unless there is extremely bad global cues or bad news. But markets may find another bottom 1,000-points higher from those bottoms or maybe 200-300 points on the Nifty. It is important to see if the market stabilizes in this range and thereafter one can take a call on a stock-specific basis.    

Q: Are you getting a sense that there is still patterned nervousness in the market and people are offloading a lot of positions or profits they might have made in the last few days?

A: The problem is more on account of some of the investors who were waiting to sell after they saw this particular rally and the fact that the rally petered out so soon and the markets corrected in the last two trading sessions. So, those sellers were waiting to exit their positions. They are causing more damage at this point of time. It is not so much about the traders who bought at lower levels who are squaring up, its more to do with some of the selling pressure coming from the institutions or High net worth investors or some of the long-term investors.

Q: Did the Reliance numbers look bad to you?

A: Over the past 3-4 quarters, Reliance has tended to surprise the market with a very good set of numbers better than street expectations. That did not happen this time. The reduction in the refinery margins is certainly a cause for concern. The general impressions one gets is that going forward for the rest of the year and beyond refining margins may remain under pressure as RPL’s own refining would go onstream and that itself would pressure the refining margins.

So, it seems that for RIL the environment has deteriorated a bit over the past few months. Therefore, it is just not the results, it’s the uncertainty and the fact that there are no major positive news developments apart from the fact that new gas is going to come out of the new Krishna-Godavari basin. But these things are getting factored in. Therefore, we are seeing such a sharp correction in RIL at this point in time.

Q: Is it the risk of a weekend and how volatile things can get, that you are seeing this acceleration in a fall right now?

A: Blasts in Bangalore would have soured sentiment in the last few minutes or so. Overall, the results are getting a bit tricky. Reliance came with an okay set of numbers. Thereafter, we saw even Idea coming with numbers which are slightly below expectations. Therefore, there are some issues on that front.

Q: Would you buy something like an ICICI Bank on this weakness?

A: I would wait a while and let us see the results. ICICI Bank is a complex company and they are going to have lots of provisions, writebacks and so-called one-time kind of issues have always been a part of this company. Let us just see the result and see how the numbers are, the internals and then take a call. Even if the results are good and you have to buy the stock 4-5% higher, that would not be such a bad idea. But at least you would have one uncertainty out of the way. 

Q: What is your sense of what the next few days might throw up by way of trading because there is another big event the market would have to deal with which is the policy sometime next week?

A: Yes, there are more results coming in. A lot of newsflow in the US markets seem to have turned and oil is not falling anymore. So, we have our plate absolutely full for next week and the markets remain volatile the way they have been.

They will react to news based upon the actual newsflow. So, it is going to be a bit dicey for traders and we should expect a lot more volatility. But by and large, we should be in for some kind of a tough time because the flow of news may get a bit disappointing.

Usually the results, which come out towards the end of the result season, are not that encouraging. Good results tend to come in the beginning of the season and then we have got more results coming in towards the end. So, this is the last week of the results season, which we need to deal with.

Even the kind of fall that we saw on the US market yesterday was quite disturbing and there is fresh negative newsflow coming in from there on account of the housing market and subprime losses. So, we had a good time for the past week or so and now it may be a trying situation for market players for the next week.

Q: If there is some bad news or bearish tone that the RBI Governor strikes in his policy meet this time round, do you think all the good work done these past few days could get undone fast?

A: There is certainly a possibility. We could see a correction of 5-7% from these levels if there are some sharp moves from the RBI and if they take certain steps which the market has not been discounting or factoring in. So, that possibility also exists as against the threat of further sell off in global markets as well as the oil process.

The threats have not dissipated over the past couple of weeks or so. It is just that oil has come down a bit and we have seen a positive development in the form of trust vote. That has resulted in the market forming a bottom and moving up from those levels. But we are back to square one in terms of other issues, which we are dealing with like high inflation, interest rates and slowdown in corporate profits.

Q: What would be your strategy for next week? We have important events like the policy and the earning season would come to an end. How would you position your portfolio right now?

A: For retail investors, it is a good time to wait and watch and have this earnings season over and done with. Then, we have the Reserve Bank of India (RBI) policy meet as well. So, some major events are coming up which one needs to understand and have them discounted in the market before one makes a call. So, it would be a bit of a wait and watch and maybe these are good levels to have a hard look at the portfolio and get out of some stocks, which will be threatened in case oil prices go up further or inflation and interest rates remain high. These are good levels to do some kind of a reshuffling and maybe some other companies may come out with a poor set of numbers. One could exit out of that and go into companies where there is earnings visibility.

All that would be after this earning season is over and the numbers have actually sunk in and the major event of the RBI policy is out of the way. For the next week, investors should remain on hold. It may be a great week for traders provided you are fast because there would be a lot of volatility because of the newsflow, which would be thick and fast.