At this juncture, the market will impacted by what the RBI governor says rather what the finance minister says, believes Dipan Mehta, member, BSE & NSE. Mehta's views come on the back of the ripple effect being created in New Delhi due over coal scam.
The Supreme Court today termed the CBI's sharing its report with the Law Minister and others as 'very disturbing'. It has also slammed the agency for keeping the court in the dark.
Mehta believes the current consolidation in market has nothing to do with the political drama unfoldling in New Delhi. "I do not think that all these minor issues with the SC or the government are impacting the market. Market is just taking a pause after having run up so spectacularly over the past 10-12 trading sessions or so," adds Mehta in an interview to CNBC-TV18.
Below is the edited transcript of Mehta’s interview on CNBC-TV18.
Q: The profit taking in the market coincided with the Supreme Court (SC) reading the riot act to the government on the CBI showing its affidavit to the law ministry and the prime minister’s office (PMO) before filing it with the SC. Do you think this is going to impact market sentiment in great deal or is the market taking profit simply because there is a lot of profit to take?
A: No, I do not think that all these minor issues with the SC or the government are impacting the market. Market is just taking a pause after having run up so spectacularly over the past 10-12 trading sessions or so. The big story remains cut in interest rates and we have that coming in on Friday. What the Reserve Bank of India (RBI) commentary is, market is focused more on that than what is happening in New Delhi.
Q: Just on the back of these increased allegations of corruption against the United Progressive Alliance (UPA) if they decide to go slow on a little bit of reform, do you think it is going to upset the markets too much, are they expecting a lot from the government even after the parliament session gets over?
A: If anybody in the market is expecting reform from the government after all the political problems which have taken place over the past two-three months, then that is an unrealistic expectation. We are in an election year and one should not expect any reforms at all. The ball is in the court of the RBI governor and what exactly he has to say and what exact policy he follows will have far more impact on the markets than what the FM or the government has to do.
Q: If a repo rate cut does come, 25 bps as the market is expecting as our poll threw up, do you think that will make a big difference to the market. What will it look out for – how would you trade this market ahead of the credit policy?
A: A 25 bps has already been factored in and anything more than that in terms of even a cash reserve ratio (CRR) cut will see the stock market rallying up on that news. After that, the next reading is going to be the inflation rate that also will be very important because it will be for the month in which the energy prices have come off.
If that also is supportive and the consumer price inflation also tends to drift lower, then we’d have a better current account deficit number as well. As and when these data points do come out, if the market is in the single trend, which is improving, the market will continue to rally. That is the big trend and theme which we need to follow apart from minor movements in stock prices on account of quarterly results. That is what we are focusing our eye on just now. The macros are improving enough for the market to finally breach pass the 6,000 level and enter into new highs of fresh territory.
Q: If the noise level increases and perhaps it even leads to the law minister even resigning, do you think the market will be perturbed or it will not be?
A: It will have a momentary effect. News, whenever it comes, tends to get sensationalized and it has its minor effect but as it is analysed, it will show that it does not have material effect on the economy, corporate profits or GDP growth rates and the market does tend to correct thereafter. We have had almost a minority government in place and the market corrected thereafter, but then the fundamentals have taken over and with oil and gold prices falling up, we are seeing the market back at the level before all these political problems started.
Q: At the moment, are you buyer in the market or would you wait and watch?
A: It is a difficult question to answer, but a simple strategy would be to buy every time there is some positive news especially on the macro front.
Q: What are you advising your clients on Hindustan Unilever Ltd (HUL)?
A: I think it is a great development for the country as USD five billion will be coming in. There are all smiles here on that count. It shows that the India story is alive and kicking and with Unilever taking a step like this, it is absolutely a kind of blue-sky as far as the FDI is concerned. It is typically a FDI and if they are looking at investing at these valuations in HUL, it sends a very strong signal for other MNCs and other global investors as to what their strategy for India should be.
Q: What are you advising them? Are you asking people to tender in the open offer or hold on?
A: I think they should tender in the open offer because the price is very attractive and at those kind of valuations, it makes sense to atleast sell at one point of time. Correction will always be there, this is not a one-sided market, one gets opportunities even afterwards to get into HUL.