In the run up to the Budget, the market has been consolidating and despite a small uptick leading to a closure in green on Tuesday, Krishna Kumar Karwa, MD, Emkay Global Financial Services does not expect a big move ahead.
"The general expectations are that it will be a capital market friendly Budget. The finance ministry has been moving around the globe and has been positive about the domestic economy and the expectations on that front are reasonably positive," adds Karwa in an interview to CNBC-TV18.
Further, Karwa expects the Nifty to hold 5,900 levels till the Budget. He is bullish on stocks like NTPC, NMDC, Power Grid and Tata Motors as these stocks may give a decent return to investors from current levels.
Below is the verbatim transcript of his comments on CNBC-TV18
Q: Are you expecting a pre-Budget rally this time around?
A: Markets have consolidated in the last ten days and now there is a small uptick. For the last ten-fifteen years, markets have been in the range of around two percent around the Budget time. I don't think that the markets are going to be in a sharp uptick kind of a mode before the Budget. The key number which is the fiscal deficit, the Budget estimates will be around 4.8 percent. One number is already out and expectations would be more on the front, what kind of details were there and how this fiscal deficit number will be arrived at.
The general expectations are that it will be a capital market friendly Budget. The finance ministry has been moving around the globe and has been positive about the domestic economy and the expectations on that front are reasonably positive. I expect the Budget to be positive to neutral as far as the capital markets are concerned and market should be positive to stable.
Q: You expect the market to hold its 5900 flow ahead of the event. Do you feel there shouldn’t be too much nervousness beyond that?
A: I think so. If one looks at the foreign institutional investors (FII) flows they have been very robust. The only challenge being the continuous supply of paper and the domestic institutional selling which is there. So, that is going to be a constrain but domestic fundamentally where it is and the flows are being where they are, 5,900 should hold at least till the Budget.
Q: What is happening in the broader market? There are scams with which individual stocks and sectors are up. There is constant setting pressure from the retail crowd – how much more pain do you see over there?
A: As far as the broad market is concerned, we have seen deep cuts or even if one sees the smallcaps and the midcap stocks they have been reasonably well hammered. It is a function of liquidity in those stocks. There is no follow up buying which we see from domestic institutional investors or retail investors in most of the smallcap, midcap stocks. Liquidity is a major challenge and a small negative event in any individual stock, there is nobody to support the stock at lower levels. That is one major reason why smallcap, midcap stocks have fallen more aggressively.
Apart, from that, individual stock fundamental do play out, so we have seen deep cuts in some of the individual stocks.
Q: Any sign of buying that you spotted from retail after the 200 point correction or the pull back in the Nifty or that made them even more skeptical?
A: Retail investors have continuously been selling and once one sell at around 6100 levels odd and within ten days the markets are down to 5900 then all the more confirms, believe that markets are toppish and they continue to sell. Retail investor will continue to be on a sell mode till we see a decisive uptick beyond 6,300. I don’t think so they are going to come in hurry.
Q: What ideas are you pushing to your clients now?
A: It is a very challenging environment because wherever there is earnings visibility the valuations are not in your favour and wherever valuations are reasonable there you have challenges in terms of ability to be able to predict the earnings. The bottom up theory that we keep on following is not showing up too many good ideas as far as recommending to investors.
Stocks like NTPC or NMDC or Power Grid or even Tata Motors are some of the stocks that from current levels should give a decent return to investors.
Q: Many of these are the ones that hit the market with offer for sale (OFS), are you putting out recommendations on the ones that are in the pipeline – Rashtriya Chemicals and Fertilizers (RCF), Steel Authority of India (SAIL), Nalco?
A: I don't think so. For some of those stocks, we are not positively inclined - on SAIL or MMTC or NALCO but the stocks that I mentioned the valuations are in their favour. Today, the investors are more assured on a return of 15-18 percent than seeing deep downticks on their investment portfolio. The valuation of these stocks being where they are and the earnings visibility what they are so that is why we are recommending these stocks.