Lower inflation, rates to trigger mkts ahead: Reliance MF

Madhu Kela, Head-Equity Investments, Reliance Mutual Fund, said the Nifty level of 3,800 is likely to hold. "There is a low probability of the Nifty slipping below 3,800. The Nifty needs to trade in the 4,000-5,000 range for a while. The markets are currently witnessing profit taking after strong rally."

According to Kela, we may see some placid period before the bull market resumes. "This downtrend may continue for some more time. So, we are unlikely to see a new high in a hurry. The volatility needs to end before larger players start investing."

He feels the government seems more committed to take the reform process ahead

Inflation, he said, is likely to significantly decline in coming months.  He feels the investment boom will resume if interest rates fall. "Lower inflation and interest rates will be the most significant trigger for the markets."

Kela does not see significant tightening over the next two months.

Excerpts from CNBC-TV18’s exclusive interview with Madhu Kela:

Q: Do we have an intermediate bottom in place at 3,800?

A: Yes, that is our view. We are definitely more comfortable about the markets right now as compared to where we were a month ago. Crude has cooled off significantly. The political situation certainly has improved and is friendlier to the stock markets right now. So, 3,800 must hold for this market unless we see another big debacle.

Q: You had earlier said you would park in a lot of your cash at 4,000 Nifty. We spent quite a few days below that level at around 3,800-3,900. Is all your cash gone?

A: We managed to invest a lot of money. We must have parted with 40-50% of our total cash in the markets between 3,800-4,000.

Basically, the cash that we have has to be viewed in the context that we are managing various types of funds with various different mandates. I don’t feel very comfortable being invested 100% in a natural resources fund given our own view of crude oil and commodities. So, obviously in that fund we will continue to have a reasonable amount of cash.

Similarly in the power sector fund, we have the flexibility to go from 0 to 100% in debt as well as equity. We have an extremely high beta portfolio in that fund and are significantly invested upto 75%. Having 20-25% cash in that fund doesn’t bother me too much.

But wherever we felt uncomfortable holding cash, which was more in our diversified funds, we have managed to invest there significantly.

Q: Is it a technical pullback or a bear market rally? Is it fizzling out or just profit taking after a spectacular rally?

A: I would tend to go with the latter. After a strong rally there is a bit of profit taking which will happen. Since we have seen such a significant correction in the market, which lasted for seven-eight months, this is going to give us a bit more pain in terms of time. So one should not expect that all is well, everything should be forgotten, we are back in the bull market and are going to see a new high in a hurry. If the markets have to have a meaningful rally in the long run, then they have to spend a lot of time here. We will see this kind of fizzling out and the market is going to test the conviction of a lot of people before making the big move.

Q: Would you expect the market to spend sometime then in a fairly sideways kind of range because right now the markets are very volatile, they fall 10-15% quickly then bounce back 10% quickly. Before the bull market eventually resumes, would you expect to see a more placid period which we haven’t seen yet?