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Momentum in favour of mkts correcting further: Dipan Mehta
Published on Mon, Jun 09, 2008 at 15:48 , Updated at Mon, Jun 09, 2008 at 17:19
Source : CNBC-TV18
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Mehta advices getting out of the interest sensitives and poor quality stocks. He said one should get into the high quality and high growth stocks where there is visibility or those which are a play on higher commodity prices. Excerpts from CNBC-TV18’s exclusive interview with Dipan Mehta: Q: Rough day, where do we go from here, are you seeing more downside from here? A: Very difficult to predict in the immediate short term. It all depends upon crude and the overseas markets. The momentum is in favour of the market correcting a little further, but I don’t see anything like a 10% kind of a correction from these levels. For that kind of a correction, you may have to see a bit of a short covering and a bounce back. The market may go down a bit more, but at some stage it will stabilise.
Q: What’s your own sense on the situation on the F&O side, right now, how large are the short positions? A: Difficult to give a number to it. Since the past 3-4 trading sessions, a lot of futures are trading at discount and the open interest has been increasing consistently across the board, especially in the Nifty futures. This clearly indicates that huge naked short positions are being built up in the market. A lot of investors, especially the institutional investors and hedge fund FII’s are creating short positions in the Nifty and then covering that and selling in the cash market. That’s why the discount in cash is increasing and the futures market of the Nifty are again narrowing without any perceptible change or movement in the stock prices.
Q: What about all the technologies stocks. Where is it that you see more value or even more safety right now. The frontline four or within the whole midcap space? A: I think the frontline four are safer. They have moved up significantly over the past few weeks and now are trading at reasonable valuations. But if the market were to correct a bit further one would see very attractive valuations for the midcap stocks as well. Some of them are trading close to book value or at just 1.5 times the book value. Normally we do not buy stocks when they are trading at book value, we buy more on PE multiple and revenues per share. Therefore if one should wait a while and one will get attractive valuation in the midcap technology stocks as well.
Q: What’s your gut feeling? Do you think we will amble around these levels and get away this summer or is there a bad feeling at the pit of your stomach that we maybe surprised by the levels that we see? A: It’s difficult to answer because it’s all about oil. There are two camps, One that says, “It is a bubble and we will see a sharp correction” and the other that says, “It will go to USD 200.” If it goes to USD 200 one can be very certain that one is going to see 10-15% correction in our markets maybe less elsewhere globally. But if oil goes back from USD 150 to 110-115 even USD 120 levels then these are fair levels and one would have a bottom in place at around 14,500 or so. So it’s not that we are looking at fundamentals of just the Indian economy or corporate earnings it’s the whole oil issue and how it’s playing out and how it’s going to impact interest rates. At the same time I want to point out that we have gone through an earnings season and we haven’t seen that many more earnings downgrades by analysts. This means that for the next six months or maybe a year the earnings picture will more or less be stable. What is getting damaged is the price earnings multiples which is linked to the interest rates that are going up and how much these price earnings multiples can compress is very subjective and difficult to state at this point of time. But I think all eyes are around the overseas market and oil at this point in time is just reacting to the developments taking place over there.
Q: You track media, is that as well paying for high valuations? A: If the overall economy is affected then the advertising spends are going to come down and that reality will gradually creep into media stocks. Print media is also suffering on account of high news print prices, so that’s affecting the entire media space at this point in time. The valuations are at attractive levels but then one has to see how much damage these kind of macro trends are going to have on the earnings in the medium to long term.
Q: What do you do in this kind of an environment? Do you take a call that you protect some capital and lighten up on equities or do you just hunker down through this rough phase and hope things will improve in a few months from now? A: I would go with the latter, just hang in there for the time being, There are certain short term problems on the oil side. One has to hope that it resolves itself. At the same time, if you haven’t sold at the higher levels, then these are levels which one will find very difficult to sell at. A lot of portfolios are looking at losses on the investments made in the past 12-18 months or so and it’s a very difficult decision to take at this point of time. At every correction or when there is stability or better volumes in the midcap, one could look at doing intelligent switching within industry groups. Get out of the interest sensitives and poor quality stocks. Get into the high quality and high growth stocks where there is visibility or those which are a play on higher commodity prices.
Q: What’s your sense of domestic sentiments right now? We know what’s happening on the FII selling front but are the domestic guys digging their heels in right now and just riding the south or so you think the domestic sentiment has taken a big hit this past fortnight or so? A: I think domestic sentiment has also taken a big hit. A lot of portfolios are being sold off in the market especially on thin volumes. That scenario seems to be playing out. A lot of investors who bought in 2005-06 or so are now liquidating at least a part of their portfolio. They feel that there is no conviction even in long-term investing at this point in time and just creating liquidity and preventing further capital erosion. So definitely the domestic sentiment is extremely poor. Every time the FII numbers are negative and they are disappointing and cause more panic and grief with domestic investors.
Would you be a buyer at all in these counters? One should wait and watch at this point in time. Do not initiate any buy trades. The next two-three trading sessions are extremely important for the market because these are critical support levels. If they are cracked then there would be further problems. So it’s important to wait and watch at this point of time and avoid buying into any stock at this point in time.
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Dipan MehtaMessages on Market Outlook - Short Term
Other comments
Worse slowdown yet to hit markets
Excellent post ramesh aha!!...
in Market Outlook - Short Term - radhika_nandlal at 11-Oct-08 07:54
Worse slowdown yet to hit markets
The Media often gets away with many things because public memory is just short! This is one thing you can keep sho...
in Market Outlook - Short Term - rameshaha at 11-Oct-08 07:31
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