The markets and India particularly will be watching both the Fed announcement and the Reserve Bank credit policy expected next week, says Krishna Kumar Karwa, MD, Emkay Global Financial Services.
The new Reserve Bank governor Raghuram Rajan postponed policy meet from September 16 to September 20 because he wanted to fine-tune credit policy depending on the Fed announcement, he says. The FOMC is expected to announce withdrawal of its stimulus measures since the US economy has started to pick up. Karwa believes if Fed tapers its bond buying programme, it will have a bearing across all asset classes.
Karwa believes 5,200-5,300 is the level where market finds its natural support in terms of fundamental valuation itself and around 5,850-5,900 the market seems to be fairly priced.
Below is the verbatim transcript of Krishna Kumar Karwa & Sushil Kedia's interview on CNBC-TV18
Q: All eyes will be on the two big policies next week both local as well as global. Just wanted to get a sense from your end on which policy is the market watching out for more keenly and which is the one policy that has the ability to derail the market?
Karva: I think the market is looking at both the policies very closely because at the end of the day in the sense that how the US Fed decides tapering if any and the quantum of tapering etc will have a significant bearing on all asset classes across the globe. We also would be very much looking up to that event very closely.
Having said that, that is the key reason why the credit policy which was earlier expected to be on September 16 has got shifted to September 20 now. So I am sure the Reserve Bank of India (RBI) governor also will be closely watching the policy pronouncements over there and fine-tuning the credit policy that we will have. So I think the markets overall and India at least is looking at both the events very closely and that will be a deciding factor in the next week.
Q: The moot point of last week was that the bulls at any point in time did not give up on this uptrend, in fact by the end of the week, we still manage to hold on to that 5,850 zone, what is the sense that you are getting, do you think this pullback will continue?
Kedia: No I am very suspicious of this pullback, you have used the right word, it is a near-pullback so what if it is so huge. The later part of our conversation I would like to quickly bring in all the key global charts, all of them are poised at a very important point of inflection, all of them together. All currencies, all equity markets and this event this time unlikely the way a similar event has been coming in regularly is of not such a lower significance, I think the markets are going to move very big as this event uncoils and it is likely that they are all going to be sliding down.
Q: In that case, what would be the strategy, how would you play the market, would you use Nifty Puts, would you use Nifty futures, how would you approach the trade there?
Kedia: Different instruments are used by different people based on the type of risk they want to take. One per se is no better than the other but if the view is what I am going to discuss here now should Nifty not close above 5,900 on Monday, I am not going to wait for the policy, I am going to look by the price cues and I am going to unwind all long calls that are open from my table and should Nifty make a lower close than the close of Thursday – about three-four days lower close is good enough for identifying a reversal, I am going to be looking at a drop straight down to 5,000 or lower.
Q: What is your call on the medium-term direction of this market, do you think at least we have made a bit of a bottom around that 5,200 panic low that we had and those levels should not be violated or you will not place your bets on that?
Karwa: Fundamentally, I believe that 5,200-5,300 is the level where market finds its natural support in terms of fundamental valuation itself and yes, I agree with Sushil Kedia on the other side also, around 5,850-5,900 the market seems to be fairly priced. So market has done its 10 percent kind of an uptick in the last 5-6 trading sessions and these two important events should be looked at very closely and yes, 5,200 should be a level where if the market slides down then that should be the level where you should find natural support coming into.
Q: Can you give us a couple of key levels on the Nifty and on the Bank Nifty, what are the levels a breach below which will confirm to you that we are back to resuming a downtrend?
Kedia: On the Nifty as I told you, I need to see a closing price on Monday that is going to be higher than 5,910. If the closing price is above 5,910 on Monday, I am going to postpone or suspend my sell call but if indeed that closing is coming lower than that then that is where the trigger is. If that does not happen on Monday, another variant to play out is on Monday, the closing must be lower than 5,860 for me to go short all hog otherwise I am going to start nibbling into short positions slowly.
Similarly, for CNX bank, this rally is much shallower so far even though percentage wise it looks more because when you look at how much it fell vis-à-vis the Nifty over the last three months, this rally still looks to be much shallower to me and maybe I will wait on the Bank Nifty for a couple of days more because only a couple of banks - Bank of Baroda has given that sign, ICICI Bank has, but the rest of the banks are still lagging the market and maybe they will top out in a couple of days. I am not going to be looking at Bank Nifty to be shorted on Monday even if there is a lower close I will wait for a few more days.
Q: How are you approaching the banking space now because in this week gone by, we saw some of these banks rise from the ashes, Punjab National Bank (PNB) was up 15 percent, Axis Bank was up about 11 percent, but fundamentally there still doesn’t seem to be that much conviction to put your money in these names, do you concur that these are just trading bounces and one should not accumulate or are you looking at any cherry-picking now?
Karwa: I agree with you in terms of the banking stocks after that deep cut of earlier days have had some decent bounce of a function of also the RBI governor’s opening speech and also valuations being where they were. So it was natural for them to have had some bounce off. But for the rally to sustain in banking stocks, I think it is going to be important in terms of what kind of policy announcement etc come in the upcoming RBI credit policy for investors to feel comfortable.
Primarily, as far as public sector banks are concerned, it is all going to be about what kind of action they intend to take in terms of the rising non-performing asset (NPA) issues and what kind of policy announcements are there as far as your short-term interest rates etc are concerned. If there is a pragmatic view and if the policy pronouncements are positive then that becomes more rally in the banking sector. Otherwise, we have had a decent rally and banks should consolidate at these levels.