SV Prasad of Schroders said the focus would now become more domestic in terms of corporate results and RBI policy. The global scene looks a lot better than what it was last month though midcaps and the Nifty Junior index clearly show that markets are kind of waiting with bated breath for corporate results, he added.

Neppolian Pillai, Head-Institutional Equity, Modern Shares & Stock Brokers, feels the Nifty as well as Sensex will have to go through a base building process. The first thing will be to go above the 50 week moving average which is roughly 4,945 for the Nifty and about 16,670 for the Sensex, only then one can now take a positional trade instead of one-two day trading, he added.

Excerpts from the exclusive interview with SV Prasad and Neppolian Pillai:

Q: March has been bad, but do you think we can build in April or you still remain uncertain?

Prasad: I am still uncertain. The one good thing is that the Ides of March is behind us in more ways than one and it is a big relief. But I think the focus will now become more domestic in terms of corporate results, RBI policy. So, therefore, I am still keeping my fingers crossed. I only hope that we don’t see more skeletons coming out of the proverbial closet.

At least for the time, the global scene looks a lot better than what we were worried about last month or so. But I am still kind of keeping my fingers crossed. To me, the real thing is not so much the Sensex and Nifty that capture more the largecap stocks, but the fact that midcaps are down and volumes are not there.  The midcap and the Nifty Junior clearly show that markets are also kind of waiting with bated breath as to what the results have in store as far as the markets are concerned.

Q: What do you think we will get this time by way of earning because there is a lot of apprehension as you laid out on what kind of provisions or hit companies might take. Do you think we should prepare ourselves for negative surprises this earnings season?

Prasad: I hope that we don’t have to do that and we also hope that the market has discounted a fair bit. Some of the companies have also revealed that there have been certain exchange derivative losses. So I only hope that we don’t have too much of negative news.

If there is a question of provisioning; we will see an impact and hopefully most corporate would take the brave call of doing the complete provisioning and starting all over on a clean slate. That’s my hope. But that may not be the real story in each and every case; there could be factors, which could be different from company to company; it’s not easy to paint this whole thing with a broad brush.

So to my mind, the concern is on earnings and what the provisioning hit is going to be and as one can see, the market in some sense has built this scene because lot of the price earnings multiples which reflect the confidence or otherwise of the market have taken a hit and that’s why we have seen the market come off quite a bit. Of course, the headline focus is always on the Sensex number and the Nifty number but if you look at the midcap numbers and the Nifty junior numbers, they have their own story to tell. So I am keeping my fingers crosses plus the fact that inflation has crept up. What’s going to be the implication of that as far as markets are concerned? What’s going to be the political implication of the nuclear imbroglio, which is continuing unfortunately. I think these are some of the dark clouds looming in the horizon.   

Q: Where do you stand on the bottoming out question because a lot of people have observed in the last two-three days that maybe just sub-15, 000, the market has shown some signs of bottoming out and we will probably not violate those levels? Are you convinced that that might actually be the case?

Prasad: Yes, I think from a bottoming point of view, the worst is behind us, the only caveat is that if some of the corporate numbers look really bad which seems little unlikely because if one looks at the advance tax numbers they have looked pretty good. So I think as far as bottoming is concerned that’s behind us and to a large extent that’s also been driven by global factors because let us not forget that the multiples which is driven by liquidity is right now provided by the global flows.

So as far as the bottoming is concerned and the numbers we have seen that’s behind us and also given that March is over now and we have come out relatively unscathed while appreciate that on month-to-month basis we have seen quite a hit. But given the last one-week mayhem that we have seen barring the last two-three days where the markets have sharply gone up. In that sense I think we got over March pretty much unscathed.  

Q: Do you think we have formed a based around 4,500 mark on the Nifty. Can you say that with conviction?

Pillai: At best we are beginning to look at the base above that level. To put it in perspective the 4,470 level, what we hit on the Nifty is very close to a major retracement target of about 4,428. This target is taken out with a bottom of about 1,292 of 2004 and the top of about 6,357. So that was a major level from where Nifty could gain or recover. And the similar target for Sensex is about 14,720 taken from a bottom of about 4,227; the May 2004 bottom again to the top of 21,206. So these two were major points and I am happy that the market has held up to that and now it’s trying to recover. So from that point of view maybe we are creating a trading base at best probably not a investment base as of now but every base starts as a trading base in the beginning and once they recover to a certain higher level then they become a investment base.

But the Nifty as well as the Sensex will have to go through a base building process; the first thing they will have to do is they will have to go above the 50 week moving average which is roughly about 4,945 for Nifty and roughly about 16,670 for Sensex, only above that we can say with conviction that one can now take a positional trade instead of a day trading or one-two day trading. So we are at the base lets hope for the best and see whether these targets can cross to bring in further higher levels. 

Q: What are the probabilities in your eyes that we can climb to those 5,000 plus kind of levels and trade consistently above that?

Pillai: The probability should be reasonably good, because we have gone up more than our strength, though we did hit major levels. I think we are going up purely on the strength of the Dow and the S&P because the Dow and S&P were at major support levels at about 11,650 and about 1,260 on the S&P. They were trading at about the 200-week moving average for them at those levels and also the 50-month moving average at these two respective levels.

Now they are going up, recovering, which is very well. But I am concerned with the headroom that is available in both these indices, because the 50-week moving average for the Dow is about 12,800 and the morning trendline is about 13,000. We are already at about 12,600. So, we have a 200-400 point headroom. After that they are likely to correct the 1400-point highs that the Dow has seen, even if it corrects by 50% - 700 points, India is sure to go back and test the bottom.

So, I am concerned that on the higher side, there may not be much headroom left. So, if one has not bought at about 4500-4600 levels, to come and buy at about 4800-4900 may not be a good play from a trade point of view. So, on the fall one can position oneself to buy into. But don’t buy into the rallies.

Q: Many oversold sectors like real estate, banking, midcap IT et cetera have bounced back very sharply in the last few days. Any clusters that you can single out by virtue of being very badly oversold can give you even more of a trading bounce from here?

Pillai: The very fact that you mentioned that it is oversold is why these kind of sharp recoveries come in. But one sector in particular the real estate sector most stocks were oversold, were at either major support level or at all-time bottom levels.

For Unitech, the Rs 245-256 range on the grid is the maximum support level for that. Now that is recovering from there. It is about Rs 282 now, okay you have a Rs 20 headroom there. It can move up to about Rs 304.

Or if you take a stock like HDIL, it did almost a double bottom kind of level at about Rs 478. Now that is recovering. You have another maybe Rs 30-40 headroom there up to Rs 634-649. So, the headroom on the upside, since they have recovered so fast, so furiously is less, though one can again place oneself into a buy mode at the lower level maybe at around the Rs 260-250 level in Unitech at about the Rs 500 levels on the HDIL counter. The headroom on the upside seems limited.

IT the other sector that you mentioned, I guess that sector in the current fall is going to majorly bottom out. That is visible from the fact that a stock like Infosys did a 10.