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Home » News » Markets » FII View

Dec 12, 2008, 07.52 PM | Source: CNBC-TV18

Mkts can rally 10-15% in next 3-6 months: Citi

Aditya Narayan, Director & Head of Citi Investment Research feels that the markets would remain rangebound for some time. The economy is beginning to slow down, he said. The markets can rally 10-15% in the next 3-6 months, he added.

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Mkts can rally 10-15% in next 3-6 months: Citi

Aditya Narayan, Director & Head of Citi Investment Research feels that the markets would remain rangebound for some time. The economy is beginning to slow down, he said. The markets can rally 10-15% in the next 3-6 months, he added.

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Aditya Narayan, Citi Investment Research

Aditya Narayan, Director & Head of Citi Investment Research feels that the markets would remain rangebound for some time. The economy is beginning to slow down, he said. The markets can rally 10-15% in the next 3-6 months, he added.


The markets would remain volatile for a while, Aditya Narayan feels. He expects some level of balancing in the next 2-3 quarters. He prefers defensive sectors like FMCG and Pharma. It is too early to call for a bottom in real estate, he said.


Aditya Narayan would remain cautious on commodities broadly.


Here is a verbatim transcript of the exclusive interview with Aditya Narayan on CNBC-TV18. Also watch the accompanying video.


 Q: What is the sense you are getting of what the market is trying to do right now? Is it building up some gains or do you think we might still remain ranged for a while?

A: My sense is that the market will probably remain fairly rangebound at this point. I think you’ve got some support from some of the easing off in terms of the macro side, I think there is clearly much more liquidity in the system, and the government has stepped in fairly aggressively.

On the flipside, it is counterbalanced by the fact that the economy is now beginning to slow very visibly. When an economy slows, it is not something that turns around as quickly as we have seen say with the macro. So, to that extent my sense is it is going to be more rangebound than meaningfully directional.

Q: So for where we are right now, where would you put us in the range? Is this as much as it is going to get in terms of a rebound, or do you think the market might rally a bit more and then settle into a higher range of sorts?

A: My sense is over the next 3-6 months, it could go a little bit higher, probably another 10-15% from here. But that is where it will tend to remain rangebound for a while. Post which you really have to see how long the economic slump is lasting and whether there are signs of insipient recovery in the real economy.


Q: How do you read the global turf right now because there has been pretty meaningful rallies in many commodities – we have actually been lagging this global upmove – how do you think the global situation is going to remain over the next few weeks?


A: In a single word it probably will remain volatile but to some extent you are seeing some level of balancing out that’s happening in terms of expectations. Over the last month or two, there has really not been any real fix in terms of what a fair level or what an expected level of growth is. Over the next one or two-months you will see that leveling out a little bit once you get may be the second or third round of negative GDP growth numbers – that’s where you will effectively see some kind of balancing out or evening out in terms of expectations. So in some ways the volatility that you have seen in most of the global markets – that should now start moderating a fraction. As far as translating into a bigger bounces as far as India is concerned, the commodity side is one thing that tends to play through fairly directly. But as far as the broader economy is concerned – realistically speaking, India went up a very long way in terms of real growth and to that extent, you are seeing the beginning of the readjustment cycle and it is really hard to call the bottom there or where it is going to stop and to that extent – to some extent you will tend to see a little bit more uncertainty in India then relative to some of the global markets.


Q: What would you lean on in terms of action within our own shores then? Would it continue to be RBI cuts and some of the rate sensitives or do you think we can start leaning on fiscal stimuli more?


A: At this point in time we would probably be a little bit more bias towards the more traditional defensives which would in part include say the pharmaceutical space or the telecom space and if you were to seek to pony up a little bit of risk then probably the banking space rather than say the auto space which is also a traditional interest rate cyclical. Real estate – it is probably still early to call the bottom in terms of that market but that’s the big sector that is going to give you the biggest gains if you actually time it right.


Q: What about the commodity space? Are you a buyer in anything over there?


A: No. We are largely sellers in that space. We remain reasonably cautious as far as the boarder commodity space is concerned. We would be open to playing bounces there and we have seen one of it fairly recently and fairly aggressively but at a broad thematic level we tend to remain a fairly cautious in that space.     


Q: How would you approach these two sectors now – telecom and technology?

A: Telecom is a sector that we would continue to be overweight on. We have been overweight there for a while. The primary reason there is that in a way the demand there in our view is not capital intensive and neither is it very rate sensitive. To that extent the robustness of demand as far as subscriber growth is concerned is fairly significant and that’s going to be in large measure – an underlying theme. Where are we seeing demand hold up or largely stay inline with the kind of trajectory that had been anticipated over the recent past. As far as the IT space is concerned we tend to be a lot more cautious there. We are really running an underweight stance there and we will continue to hold that in large measure because we think the uncertainty revolving around the new sets of order flows that these guys can expect into the beginning of the year – that uncertainty is going to actually go well past the first quarter of the year. To that extent if there is very limited visibility – one is going to see slackness in terms of growth. Our sense is that sector will continue to be weighed down. In addition as you mentioned earlier in the programme – the best on the currency moves is probably done, so you are not going to have that delta benefit either.       


Q: How worried are you about what earnings in January might throw up and tactically would you buy into the market between that period before we start looking at the earnings figures?


A: I wouldn’t buy into the market on the back of earnings that comes through in January. In measure because the market is going to increasingly look at FY10 from an earnings perspective and January would probably be a little preemptive there. As I had mentioned earlier, the trade off in this market vis-à-vis the fiscal boost and the monetary boost that you have got is really how quickly the economy tends to slow and the duration of that slowdown and in large measure the best judge of that will really be in the second and the third quarters of CY09 rather than the numbers that you get in the third quarter of the current year.


Q: What's your own sense of when we might start to see the equity market bottom out because the price damage has been quite immense this year? Do you think by somewhere in the middle of next year we might actually see the market create a reasonable or a bottom that it can hold?


A: That’s a fairly reasonable call. As you said, the price damage on the equity front has been fairly significant. The market’s off anywhere between 55-60% whereas the economy if you look at stated numbers is still growing at 7% plus. So in large measure my sense is the financial markets or the equity markets have largely factored in the slowdown that the economy is presently witnessing. Where you need to be a little cautious is that if this slowdown or this moderation is very deep and some of the headline numbers we have seen in terms of CV sales and things like that can be pretty negative. So if this slowdown is either very deep or very prolonged then the middle of next year might not be just the time for the bottom. But my sense is that as things stand today, given the fact that you are seeing reasonable signs of pressure that would be a reasonable time to sense or to make the call that the markets have tended to bottom out. Prior to that it will be just taking a little bit of risk.     


Q: One word as well on what you are picking up in terms of the flow activity? We’ve got a little bit by way of inflows. Are you sensing that money is easing up a little bit?

A: FII flows typically are, as you can imagine, relatively hard to call. But I think at a price and when there is a certain amount of stability and some sense of direction, I think money will typically tend to come back, which is what you’ve really seen in the last week where you have seen reasonably buoyant inflows because what you have seen is a string of GDP downgrades so there is some level of comfort that the market or the analyst community hasn’t got its estimates all wrong.

You’ve seen a fiscal stimulus come in; you’ve seen the government come in and fairly aggressively back the fact that it wants to revive the economy, plus you’ve found valuations that are at relatively reasonable levels. That combination has provided you a certain amount of flows.

But equity flows are equity flows. They will tend to move typically with relatively short-term moves on each of these parameters that I talked about. So to extrapolate the last week into sustained flows would be carrying things a little too far. But I think clearly you are seeing that at a price, and with the right kind of monetary backing, you will and should actually get money coming back.




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