Inflation data for the month of May will be announced today. According to a CNBC-TV18 poll, the May WPI is expected to rise by 7.4% against 7.23% in April. It would be the crucial factor in deciding Reserve Bank of India’s course of action in the upcoming monetary policy on Monday.
"In case the inflation figures are higher then expectation building up for 50 bps and CRR cut will become very strong," Ambareesh Baliga, chief operating officer, Way2Wealth told CNBC-TV18.
He expects to see a correction of about 100-150 points on the Nifty if the central bank meets consensus estimates and cuts only 25bps. However, he sees the market finding support at 4750-4800 levels.
On the other hand, if RBI obliges the market with a 50 bps interest rate cut, a CRR then Nifty might swing to 5,300-5,400.
Meanwhile, Baliga is not picking up any stock from the auto sector now. He is bearsih on aviation stocks and feels that the fate of these stocks hinges on FDI coming in the sector. However, he feels that the best play for a speculator would be Kingfisher.
Below is the edited transcript of Baliga’s interview with CNBC-TV18. Also watch the accompanying video.
Q: What you expect this RBI event itself to be for the market in terms of what the potential rally could be or conversely correction if there is disappointment?
A: Clearly 25 bps is already discounted and today in case the inflation figures are higher then expectation building up for 50 bps and CRR cut will become very strong. In case it doesn’t happen and they stop at 25 bps on Monday, then we could see a correction from there. It may not be a very steep one because we have a support at 4,750-4,800 levels.
So, there could be a correction of about 100-150 points on the Nifty. But, in case it meets expectations and we have a 50 bps cut, we have a CRR cut then we will cross this no mans land which I have been talking about in the last couple of days. We could head towards 5300-5400. But policy issues still remain. On the political side also there is uncertainty and that is concerning.
Q: What seems more likely to you, 5300 or back to 4800?
A: I would say more towards 5,300-5,400 because what I have noticed in the last two months is that inspite of all the adverse news surrounding us we have not broken that 4,750-4,800 mark. We have held on there. In the past couple of days whatever adverse news has come in for example the IIP data, clearly the market is looking for some silver lining in that.
Inspite of the data being so pathetic we are still looking at the positive side that possibly this could force the government to act, possibly this could force the RBI to act to cut rates. So, the market is more tended to look at the positive side today. In the last so many months we are tired of all the adverse news coming.
People are just waiting for some positive bytes. Even if you notice about 10 days back when we had those two positive bytes from Delhi, one from the Deputy Governor about the rate cut and the other from the Prime Minister and we saw a 200-250 point rally. The market is just waiting for some positive moves and I suppose we could see a decent rally.
Q: What about the autos, what do you do with that space now?
A: If you look at the numbers in the auto space, they will be tepid over the next couple of months. But, most of them have corrected to decent levels. I have been talking of Tata Motors correcting to Rs 230-240 when it was quoting at Rs 310.
It infact went below that, but I would still wait for a while longer before buying because as of now we are talking about Rs 220 levels to start buying. For Maruti also we are looking at levels of about Rs 1070-1080 and that could happen today looking at the weakness seen yesterday. Right now across the other stocks in the auto space, I think I will wait for a while longer because we would have at least the next 3-4 months to pick up.
Q: Would you buy anything in aviation now?
A: Aviation is completely speculative whether its Kingfisher or Spice or any of these other stocks because everything hinges on the FDI. Oil prices coming down and the fares going up is already there in the price, look at Jet and Spice and the way they have rallied.
The best play for a speculator would be Kingfisher. Looking at the talks which are happening on the stake sale in the group companies clearly shows that he is looking at that stake sale to pump in more money into Kingfisher.
As and when that happens Kingfisher can move to levels of about Rs 18-20. But if that doesn’t happen, I really don’t know as to where it will go. I would say it’s a very risky preposition at this point of time, but it is high return high risk.
Q: Anything that you have been buying from the PSU lot that you guys have been picking up?
A: Infact we had picked up SBI but then in this rally we sold off to a certain extent. At least the trading positions we have sold off because this rate cut of about 25 bps is already factored in, the expectation of 50 bps has built up. So we didn’t want to take a risk at this point of time.
The trading position since we made about Rs 300 odd we exited that, but we are holding on the portfolio positions. We feel that over the longer term if you are talking of the next 9-12 months something like an SBI can easily go to levels of about Rs 2,550-2,600 levels.