The market will fall lower before rising on liquidity, differentiation in market valuations and rise in rural consumption, says Tirthankar Patnaik, strategist and economist, Religare Capital Markets.
Speaking to CNBC-TV18, Patnaik recommends investors to bet on IT and pharmaceutical stocks to take cover in a bearish market.
Below is the edited transcript of the interview on CNBC-TV18
Q: With the rupee making fresh lows almost every week, do you expect more measures by the Reserve Bank of India (RBI)?
A: To estimate if the RBI will tighten interest rates, the two questions that need to be answered is if there are permanent measures to control the rupee and if the central bank has the means to maintain such measures. With the answer being negative in both cases, we expect more pain from the central bank as the rupee goes weaker.
Q: There has seen a major sell-off in the equity markets today. Do you expect more downside?
A: Logically, the markets should bear the brunt of lower growth and reflect the reality that India no longer commands a premium. Logic demands that the market should be down 10 percent atleast from the current levels.
But liquidity and differentiation in market valuations have managed to defy this trend. We believe that the struggle for private banks is not over yet and urban consumption could fall this year. Rural consumption should see some support from strong agricultural growth. In other words, growth will fall before it starts to rise.
Q: Where should investors go? Where should they seek cover in such a bearish environment?
A: For the last many quarters, we have recommended positioning on a dollar-dominated portfolio. So, we are overweight on IT and pharma. Investing in telecom is also another prudent option as the sector will deliver earnings visibility. It is best to be neutral on banks.