Nifty's downside could be as steep as 400-450 points, so on a risk return basis, market participants should be a little more careful, says Dilip Bhat, Joint MD, Prabhudas Lilladher.
While the taper terror is still haunting investors around the world, Dilip Bhat, Joint MD, Prabhudas Lilladher feels that Indian equities seem to be discounting the worst especially, after foreign investors have resumed buying.
In the near-term, the Nifty has the potential to rally another 150-200 points, he told CNBC-TV18 in an interview. However, the downside could be as steep as 400-450 points, so on a risk return basis, market participants should be a little more careful, he recommended.
Below is the edited transcript of Dilip Bhat’s interview with CNBC-TV18
Q: Months of anticipation will come to an end today after the Federal Reserve (Fed) begins tapering its multiyear Quantitative Easing (QE) program but how are you positioned as we head into these big events?
A: Today is a very important day as the Fed is expected to gradually taper. We also have Reserve Bank of India (RBI) policy soon, so these two situations are being very closely watched by everyone. Without any doubt, the market seems to be discounting the worst. It seems to be very hesitant to go down and ready to move up. Especially, now when FIIs have resumed buying. They have lent some amount of stability to buoyancy.
Having said that, in the current economic situation and looking at overall economic parameters like inflation, fiscal deficit and subdued growth, it is a very difficult thing to balance amidst a slew of reforms that the government is very keen to pass. The upside appears to be capped and for the near-term I would still maintain that we would still see an upside of around 150-200 points on the Nifty. And on the downside, it could be 400-450 points downside. On a risk return basis, one has to be a little more careful.
Q: What is your outlook on the auto sector?
A: In the auto space, we still continue to like two-wheelers given the overall economic conditions and the fact that monsoon will be pretty good. Also, diesel and petrol prices still seem to be heading northwards. Two-wheeler companies still appear to be best bet though growth is very nominal, yet overall parameters in terms of free cash flow, return on equity seems to be pretty good.
They seem to be pretty reasonably valued in terms of buying. I would look at those companies. Apart from that, Maruti Suzuki would be another stock that I would be looking at just for a short-term kind of trade. Otherwise, Tata Motors can be looked at.