Rally tactical, domestic negativity intact: CLSA

Speaking to CNBC-TV18 on the sidelines of annual investor forum, Dutta said nothing meaningful was happening domestically. Consumer sentiments remain dented by a number of factors viz, non-functioning of parliament, slowdown in investments, delay in legislative or administrative decisions etc, which in the long run will come back to haunt India.

Also read: Neutral on India, HSBC sees Sensex at 18,700 by year-end

Below is the verbatime transcript of the interview

Q: We have had a good stretch in the market last few months, how are you guys characterizing this - as just a tactical rally fuelled by global liquidity or something more meaningful than that?

A: We see this as a very tactical rally led primarily by global inflows and what's happening globally. As far as domestic factors go, we really do not see anything which necessarily is a cause for cheer. As we are all well aware, we have seen another parliament session ending with almost little or no business being conducted. I was meeting a few bureaucrats, journalists etc in Delhi the other day and clearly the feeling is that this sense of despondency, the sense of no decision being taken, that's probably only worsening by the day. The decisions that are not being taken today, whether it is by corporate India in terms of their investments or delays in legislations or administrative decisions, will only come back to haunt us over a long period of time.

We still have a strong pipeline of execution where you are seeing gross fixed capital formation at a reasonably decent levels, therefore you are still seeing credit growth from the banking sector at about 15% or thereabouts. Given the slowdown in investments right now this could only get worse. Our fear is that consumer sentiment also will likely get impacted going forward. We have seen some amount of slowdown in consumers, particularly urban consumers. And can this worsen if the situation prevails? Our sense is that it could.

Q: Given the concerns that you have just outlined, do you think the market upside is capped somewhere close to where we are now and markets may continue to grind in a range as they have been for last many quarters?

A: My sense is yes, we are probably in a period (which has been since sometime last year) where we will be trading in a range and therefore the markets will be volatile. The upward moves will be primarily led by global happenings, global liquidityexpectations, QE or the lack of it, so on and so forth rather than being led by domestic factors. Depending on the domestic noise and events, you could probably see that being a drag on markets from time to time. And what you can clearly see is a very wide divergence in terms of valuations and stocks. At one end you have the pharma and FMCGs which are at multi year highs and which at valuation levels, to a value investor gives very little room for comfort. On the other hand, you have the infra and investment and cap goods space where stocks have come off dramatically but there is no relief visible immediately for anyone to ahead, bang the table and say buy these stocks.