Mehraboon Irani, principal and head- private client group business, Nirmal Bang expects to see more disappointing news for the market from the upcoming three key events for the economy: Monsoon session of Parliament, Q1 earnings and the RBI credit policy.
While he expects quarterly earnings to remain muted, he feels there could be a positive surprise in store on lower commodity prices and cost-cutting measures adopted by corporates.
Irani says the negativity in the market can be also gauged by the fact that no one is talking about the good monsoon season so far.
"Last year when the monsoon was bad, virtually every second brokerage house was coming up with a negative report. It shows that the psyche is very negative right now and if we have some pleasant surprises in the short run on the global front we could be discussing higher levels," he told CNBC-TV18.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: What do you think? Is your bias for the near-term negative as we enter earnings season or are you optimistic?
A: Giving an opinion right now is like playing cards in the dark. Nobody can predict what is going to happen in the short-term. Over the 20 years I have never seen market dynamics changing virtually every passing day.
First global growth, then China, commodity prices, US bonds indicating what is happening to global liquidity and now we have the stimulus factor getting withdrawn, we have an impact on the currency. All these factors are weighing so heavily and things are changing so fast that it is difficult to say as to what is going to happen to the equity markets tomorrow.
India specific factors are going to play a role and we personally feel it is going to be monsoon session of parliament, the quarterly results and the Reserve Bank of India (RBI) policy. First time in so many quarters we are going into an RBI policy with virtually zero hopes of an interest rate cut.
As far as quarterly results are concern revenue growth will be muted. On the margin front there could be a positive surprise mainly because of the commodity prices effect and cost cutting measures deployed by corporate. I think monsoon session of parliament could be a little bit stormy with the opposition again be clamoring for some sort of no confidence motion and the government will try to pass the land acquisition and other crucial bills including the food security.
So, I think we are going in for a very tough period ahead. It is very difficult to predict because of global factors and what is happening to the currency. So to say that the markets will go up in the short-term you could be 50 percent right and 50 percent wrong. I think it is absolutely impossible to give a call on the short-term behavior of the market.
The market men have been so numbed by negative news and an important positive, not a single brokerage house so far has come up with a report on the monsoon factor. The monsoon has been very good so far.
Last year when the monsoon was bad, virtually every second brokerage house was coming up with a negative report. It shows that the psyche is very negative right now and if we have some pleasant surprises in the short run on the global front we could be discussing higher levels.
As of now I think our advice to investors is to use every sharp fall to buy into the few select 20-25 companies in the mass of about 3,500-4,000 companies in the market. Nothing else is happening at the ground level for things to improve for corporates. As and when the market gives you an opportunity go and buy more into them, because honestly the option of buying stocks is very limited.
Q: What do you do with a stock like Oil and Natural Gas Corporation (ONGC)? It has actually come down below the level where it was trading when the gas price hike happened. Would you buy it at Rs 300?
A: This gas price hike is a clear indicator that the worst possibility could be over for oil companies. However, looking at the state of the government's finances, what is going to happen when we go into an election and the Finance Minister's remark that power and fertiliser sector will be negatively affected but we will be doing something for them, where is the money going to come from?
So, it is not that he has given some charity to them in the form of higher gas prices. He is going to take it back and that is the worry of the market. So, these PSU oil companies are negatively affected as far as the stock price goes, only because there is a fear factor that what has been given to them in the form of higher gas prices is going to be possibly taken away from them.
There is a big question mark on the subsidy burden, as to what will happen to it. So, because of all these gray areas the market is not ready to look at them favorably after giving them thumbs up in the initial part. So, ultimately in the end of it all who is the gainer?