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May 14, 2012, 12.23 PM IST
From hereon, Neelkanth Mishra, head of equity strategy India at Credit Suisse doesn’t expect a very steep fall in the market, unless there is a crisis globally. However, he says, the slow grind down can continue for quite a while.
Last few sessions have been very tough for the Indian market. Global as well as domestic factors are weighing on the Nifty and have pushed it below the 5,000 mark. Though most experts are worried about a further downturn, Neelkanth Mishra, head of equity strategy India at Credit Suisse holds a contrarian view.
Mishra is not expecting a very steep fall in the market, unless there is a crisis globally. However, he says, the slow grind down may continue for quite a while.
According to him, the economy will start to bottom out maybe towards end of this year or latest by middle of next year. “The market should bottom out maybe four-six months before that,” he asserts.
Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.
Q: What is your call on the market for the rest of the year? What you are calling for, more range-bound movement or do you think the market could be set for a sharper fall?
A: I have been meeting investors for almost three weeks now. I am surprised to see that now people are turning more bearish than I was, unless they are doing and saying different things. That should mean that some of the weakness is actually priced in.
Macro economically, I think the direction we are headed in doesn't seem to be that good. The interventions in the bond market by the RBI this year have been unprecedented. This year, if you analyse the rate so far, they are buying at a rate of USD 40 billion. That shows significant stress is emerging in the economy because this shows inflation can stay higher for longer. This is the reason why the rupee is so weak. So, macro economically, I don’t think the worst has yet played out. We should see some more negative disappointments in the time to come, but sentiment wise this is perhaps as bad as it seems.
I don’t really expect a very steep fall, unless there is a crisis globally, but this slow grind down can actually continue for quite a while.
Q: What is your best guess of when things could turnaround? Which quarter do you think most of this bad news that you are talking about would be advertised openly, priced in and from which the price damage could be limited?
A: Many of the investors, whom I have talked to, seem to be missing the natural balancing effect of the rupee. Most people are already reminded of the 1991 crisis and how we had currency reserves only for 15 days of exports. Unfortunately, at that time, the currency was pegged, now it is floating.
While we have been waiting for a while for the government to do the right things, it is entirely possible that given some amount of time and weaker currency, the economy can readjust quite rapidly.
My sense is it does take quite a few quarters, I would say four-six quarters. I think the rupee will stabilise at this level, maybe another 2-3% down, but then I don’t really see it going to 60.
I think imports will come under pressure as they become more expensive. Exports become cheaper because global supply chain start orienting more towards India. And then the economy will start to bottom out, maybe towards end of this year or latest by middle of next year. The market should bottom out maybe four-six months before that.
Q: You remain quite bearish on most of the high beta sectors, banks infrastructure, metals. So, you are not taking the call that any market turn will lead to outperformance of these names, right?
A: There will always be bounces. In some years, we have seen two-three rallies and then they have faded out and the market has touched new lows. Those kind of rallies cannot be ruled out. The sentiment that I have seen is almost universally bearish. Incase there is some small positive event, there can be a sharp rally, but structurally I think the stocks still have meaningful downside.
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