After last week's rally experts believe that Nifty will be drifting downward for few more sessions and hence short bias is advised. Q4 GDP data would be the next big trigger.
After last week’s rally, Nifty is seen drifting lower at least for next few sessions, hence experts are advising to keep a negative bias on the index. Since touching a 52-week high of 6114.55 on May 11, Nifty slipped nearly two percent on Monday. The 50-share index continued to consolidate today and ended with marginal gains of 14.95 points.
“Yesterday’s big down move cannot and should not end abruptly…So, my sense is that this market will drift lower and it is only then we will determine whether this is a small correction or something bigger. So, at this point the bias is on the short side for the Nifty,” Sudarshan Sukhani of s2analytics.com told CNBC-TV18.
As the wholesale index, retail inflation and trade deficit numbers are out, the market will now eye January-March Gross Domestic Product (GDP) as the next big trigger.
Sanju Verma, MD, Violet Arch Capital believes that the March 2013 quarterly GDP numbers would be easily in excess of five percent due to low base effect.
“I think there is a fair chance to expect agricultural growth for the March 2013 quarter to come in at more than three and half or four percent, for the industrial growth to certainly come in at more than three and half percent. The spoil sport of course will be the services sector, which I think will continue to grow at six and half percent or thereabouts for the next one or two quarters,” Verma said.
The wholesale price index (WPI) in April grew at 4.89 percent, its slowest pace since November 2009 and down from 5.96 percent in March. The consumer price index (CPI) or retail inflation which came on Monday also slowed to 9.39 percent in April from 10.39 percent in March. Core inflation also fell below 3 percent indicating a worrying trend that growth could be a little below expectations in FY14.
Verma said while low core inflation number is certainly disappointing it is nothing to get spooked about. “What you should be looking at is neither the core WPI nor the core CPI because while the core WPI does not give adequate weightage to services, the core CPI gives undue weightage to food and related products with a weightage of almost 50 percent. So, both are skewed. I would ideally want to look at the GDP deflator based inflation index. That has been in the region of 7.7-8 percent or thereabouts. That is a far more well rounded and composite index,” he suggested.
Stock specific strategy
Among pharmaceutical stocks Verma prefers Sun Pharma, Lupin and Glenmark Pharma, in that particular order. She believes that Sun Pharma is a great bet is because there are very high chances of its FY14 earnings per share (EPS) being upgraded to Rs 42. Most analysts currently pegging the FY14 EPS at Rs 35-36.
“Sun has a cash chest of something like USD 1.2 billion and Taro is something which will play out exceedingly well for it. Taro, don’t forget it was a Achilles’ heel for Sun and today Taro actually has gross operating margins of something like 75 percent, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins of 50 percent plus,” Verma said.
Among other stocks HT Media today fell almost 10 percent after posting its fourth quarter numbers. While its sales were down 9 percent on year, the net profit declined by 26 percent. However SP Tulsian of sptulsian.com believes that stock suffered mainly because of disappointment on share buyback program and results were in fact reasonable good. The company’s operating profit has almost doubled.
“They have announced only just a meager amount of 25 crore share of the amount for buyback that too at a price of Rs 110. So, that shows that probably the management is not too serious,” Tulsian said adding that the company may end up with buyback of just Rs 6-Rs 6.5 crore.