Indian indices would continue to remain under pressure in a short term following sharp depreciation in rupee, global volatility, funds pull-out by FIIs and hence investors are advised to stick with safer bets like pharmaceuticals and information technology, experts said.
Equity indices today rebounded after Thursday's carnage. Both Sensex and Nifty registered marginal gains. The BSE Sensex rose 54.95 points to close at 18774.24, after a 526 points fall in previous session. The NSE Nifty gained 11.75 points to finish at 5667.65.
Rupee too recovered from previous lows and ended at 59.27 to the dollar as compared 59.57 in previous close.
"There is distinctly a possibility that the markets will come down from these levels also. In the medium-term you will find credit quality also deteriorating further from now and therefore you could see the equity markets going down," Girish Nadkarni of Avendus Capital noted. He sees equity markets bottoming out in next three to four months.
Agreeing to him Sudarshan Sukhani of s2analytics.com said that it was too premature to assume that market was bottoming out. "When a trend starts sometime there is a pause in the trend. We are seeing those intraday pauses. The trend is down and that is the takeaway for today also," he added.
Nadkarni stressed that in such volatile market, investors can look at buying some good quality domestic formulation companies in the pharma side. He suggested investors to divide their investments in two buckets; one for a period of a year running up to elections and secondly from three-five year perspective. Investors can build the three-five year portfolio when equity markets bottom out.
"If you look at the markets from a one year perspective one would tend to be long on the defensive sector… for example consumer non durables, pharma will be a big beneficiary in this whole process," he added.
Although markets recovered today, midcap stocks continued to correct. SP Tulsian of sptulsian.com believes that there could be two key reason for this. "In my view whenever the losses have to get financed obviously all the midcap stocks held by the retail investors come for selling," he said. Even FIIs could be liquidating their positions in these stocks.
Most experts now agree that for any revival in the market the government reforms needs to come mush faster. Nadkarni believes that the most important reform that government needs to focus on immediate basis is how to bring foreign capital into the country.
Speeding up FDI investment and increasing FDI investment cap for different sector would be they key to achieve this goal. Even the finance minister P Chidambaram today gave assurance that Union Cabinet would take up the proposal of hiking FDI ceiling in various sectors in the next month.
Cabinet Committee of Economic Affairs (CCEA) today annouced decision on several key issues like coal pricing and PPP road projects. CCEA today allowed power producer to pass on cost of imported coal to end-consumers. "Power project reform is really very positive which I think will bear the fruits in the time to come," commenting on government’s move Tulsian said.
How to trade these stocks?
Jindal Steel and Power shares today tumbled 8 percent to Rs 204 following report that CBI had sent notices to Jindal Group companies in reference to coal scam probe. Tulsian advised to keep cautious to negative stance on the stock. "We have seen the buying coming in from one of the promoter companies. So, we may have some pause or may be some support coming in at the level of Rs 200, if the buying continues from the promoter," he said.
Hindustan Unilever was also on radar today as parent Unilever's open offer for the stock today started at Rs 600. Tulsian advised to tender the shares in the open offer because the buyback price of Rs 600 is holding the secondary market price at Rs 590-591. He believes the price of Rs 600 is not likely to hold going forward.
"Even if we see any one quarter results dwindling by the company in respect to the volume growth the share can fall to a level of Rs 550-560. So, prudent to exit from the stock, make the tax planning, whether to sell them in the market or to tender in the buyback offer," he added.
Future Retail shares today plunged nearly 33 percent to Rs 98.60 on fashion business demerger. Tulsian has a buy call on Future Retail. "We have seen the huge shorts getting created coupled with the delivery based selling also because the foreign institutional investors (FIIs) is about 25 percent in the company and that seems to be coming for selling but I think that they should taper off maybe at the close and we may see some type of short covering for the shorts having initiated during the day time and can give a bounce of about Rs 6-7 from the current level, which could be anywhere between Rs 98-99," he suggested.