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May 12, 2013 11:16 PM IST | Source: CNBC-TV18

Mkt rally not based on fundamentals; book profits: Baliga

The market has run up on strong liquidity flows and not due to any fundamentals, says Ambareesh Baliga of Edelweiss Financial Services.

Ambareesh Baliga of Edelweiss Financial Services feels the political uncertainties prevailing over the country will keep the market on its toes. "Surely it is time for investors to book out to a certain extent because going ahead clearly I don’t see the fundamentals really supporting the markets at these levels," he told CNBC-TV18.

Also read: Long Nifty strategy remains; buy Bank Nifty: Sukhani

Below is an edited transcript of the interview on CNBC-TV18.

Q: Do you think the market’s run may get interrupted or is the momentum just too strong at this point?

A: Momentum is there because of the liquidity flows and not due to the fundamental newsflows. If you see on the political side, I think that’s going to be the biggest issue for the markets going ahead to maintain that momentum. With whatever sort of news is coming out of Delhi, I think it is not going to end with this. This could be just a beginning for the run up to the elections that you will have the political issues taking the centre stage. So, my feel is that yes, momentum is there, it is a market for traders to carry on.

But then surely it is time for investors to book out to a certain extent because going ahead clearly I don’t see the fundamentals really supporting the markets at these levels.

Q: Are you worried about the weakness that we have seen in the rupee and what about the divergent trend in the weakness in the rupee and the Nifty at the 6,100 mark?

A: Rupee weakness is a bit worrying because looking at the way the gold was moving and the oil prices are moving in the past couple of weeks, although we have seen strengthening to a certain extent in the past few days, that is a bit worrying.

We still have the view that rupee would possibly look at the levels of close 51.50-52 over the next possibly eight-nine months because we clearly see gold and oil prices coming down. That should make the rupee strengthen.

Q: How have you read all the political developments and what kind of an impact would it have on the markets?

A: Clearly from the results, which you have got for the last two elections basically Gujarat and Karnataka - anti-incumbency factor is there. Corruption issues are there which actually go against the exiting government.

However, at the same time they clearly vote in for development, which you have seen in Gujarat. So, these are the things, which will actually haunt the United Progressive Alliance (UPA) government going ahead for the general elections. I think these three would be the main issues concerning the elections.

Q: What’s the call that you guys are giving out at this point then? Are you telling people to start looking at booking positions once the market gets to that year’s high or do you think there is still opportunity to buy?

A: You really can’t wait for the markets to reach the year’s high because we don’t know whether they will reach the year’s high or possibly before that itself take a turn down. So, it is prudent to book out at every rise and get into cash to a certain extent. One doesn’t see a continuous movement upwards, which will be supported by fundamentals. Even at the ground level despite the figures, which we saw yesterday we still believe that things haven’t really changed too much.

Consumer demand is quite on the lower side, you are seeing the vehicle sales are slowing down. I think that is going to continue for a while longer. A while longer means possibly the next three-four months, if not more. This will delay the investment cycle and also the investment cycle would depend on the sort of a government, which comes at the centre.

So, till then you really don’t see things changing at the ground level. From that point of view I feel that it is time to book out. However, one can never say what is the best time to book. So, keep booking out at every rise.

Q: How would you approach some of these oil marketing companies (OMCs) now, given the diesel price hike we have seen? Is there more to go in terms of stock prices for them you feel?

A: Yes, surely because I think the whole contour for the sector has changed after that decision to free diesel prices. We have been seeing increases every other month. Now people will stop talking of subsidies and start talking about the asset pricing.

So, the companies are actually in a multi-year bull run. So, even at these levels despite the rise, which you have seen in the recent past it is still a buy.

Q: Given the strength that we have seen in the market do you think that there is a possibility of a positive surprise on the divestment target?

A: Positive surprise in a sense we have seen these divestment targets actually cracking in the last one and half-two months. The way National Mineral Development Corporation (NMDC) has cracked in the last two months.

So, based on this news we have seeing some sort of a bounce back. But would the stock possibly go back to that levels where it was two months back, I doubt whether that can happen immediately.

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