See strong short covering post-trust vote: Edelweiss Sec

Nischal Maheshwari of Edelweiss Securities expects the short covering to be very strong. "A lot of people have been waiting on the sidelines to pick up some good value stocks. They are going to jump in because there is value at these prices in quite a few of the stocks in the market. There is going to be strong reforms post this vote of confidence, if the government comes through. So, they may also be aggressive buys in the market if it comes through."

There will be much more reforms maybe in banking, pension funds, and insurance, he said. "Some of these reforms that the government has been put off for various reasons maybe pushed through in the next six-nine months and that would be very positive for the market."

He feels politics is a temporary thing, which may get sorted out in next three-four days, but crude is a longer-term problem for the market.

Excerpts from CNBC-TV18’s exclusive interview with Nischal Maheshwari:

Q: What is your take on where the market goes depending on this confidence vote over the next 48 hours?

A: It has more to do with the outcome of tomorrow’s votes. But we are seeing support at around 4,100 and upside still seems to be capped at around 4,200 on the Nifty.

Q: If the government were to pull through this vote of confidence, what could be the potential upside?

A: Our house call has been basically that if the government pulls through, we see anywhere between 4,500-4,800 Nifty. There are going to be strong reforms post this vote of confidence if the government comes through.

Q: How has trade been on the institutional side today? What kind of positions are many traders taking from the institutional side ahead of this political event?

A: People are mostly cautious. We are seeing very low volumes on our desk. But that is more obvious because people are not sure about which way the thing is going to go through tomorrow. So, people are generally trying to take up more cautious view on the market maybe buying more puts. But we have not seen a very aggressive view on either side of the market.

Q: If this thing works out in favour of the government, do you expect to see quite a burst by way of short covering?

A: Definitely. Short covering is going to be very strong. A lot of people have been waiting on the sidelines to pick up some good value stocks. They are going to jump in because definitely there is value at these prices in quite a few of the stocks in the market. So, they may also be aggressive buys on the market if it comes through.

Q: Is there any feedback on IDFC?

A: There were a couple of surprises. They have to raise tier I and tier II capital to hold on to their AAA (Triple A) rating. They have indicated 5% growth. If you look at it, last year they had done around 62% growth. So, that is what most of the people are surprised about. That is why we are seeing a good amount of selling happening on the counter for the moment.

Q: How would you approach the entire infrastructure space now?

A: We are seeing short covering definitely. In the first leg of short covering, we saw all the interest bearing or interest rate affected stocks recovering fast. So, we saw banks and real estate coming up.

Out of the all infrastructure stocks, there are few stocks which have come close to their cash levels. So, Reliance Infrastructure, Reliance Energy and Lanco Infratech are stocks that we like.  Some of the stocks are now close to their cash levels.

Q: Even if you are playing for a short covering bounce, assuming there might be a positive outcome of that vote of confidence, do you expect the whole political situation to be a long-term help? Will it just impact trade in a very short-term?

A: Politics for the time being is affecting the market. But I do not think that in the longer-term basis, politics has much to do. If this present government comes back in its form, there will be much more reforms like banking, pension funds and insurance.

In case of some of the reforms, the government has held on for various reasons and pushed through in the next 6-9 months. That would be very positive for the market.

Q: How carefully are investors watching crude prices now?

A: Everybody is bothered about crude. The bigger factor for the Indian market is crude prices than politics. Politics is a temporary thing which may get sorted out in next 3-4 days. But crude is definitely a longer-term problem for the market. 

Disclosures:

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