May 09, 2012, 03.40 PM | Source: CNBC-TV18

Rupee could move to 56-58/$ if 54 not held: CLSA

Laurence Balanco, Asian Technical Research at CLSA expects the Nifty to trade rangebound between 4,700 and 5,100 for the near-term.

Laurence Balanco

Asian Tech Research, CLSA

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Laurence Balanco, Asian Technical Research at CLSA expects the Nifty to trade rangebound between 4,700 and 5,100 for the near-term.

"For us, base case scenario is that we need to rebuild a basing pattern between 4700-5100 areas. And if we had a slip below 4700, that does see the technical picture deteriorate even further," he told CNBC-TV18.

According to Balanco, the Nifty has unperformed significantly in dollar terms so far this year.

Data on SEBI and NSE showed foreign investors were net sellers of Rs 992 crore in Indian equities on Monday and Tuesday, despite the delay of GAAR provisions by a year, in a week marked by steep global risk aversion.

The rupee opened lower on Wednesday as renewed concerns about the euro zone battered riskier assets, setting up the prospect of continued intervention from the RBI.

Balanco says the Indian currency could move to 56-58 versus the dollar if the 54 level does not hold.

Banking stocks have played a major role in the sharp fall in markets. Investors have been selling banking stocks, especially public sector banks, over renewed asset quality concerns.

Balanco believes the Bank Index could retest its late 2011 lows.

The fall in Europe and the US markets amid political uncertainty in Greece had its affect on Asian market as well. Analysts said that investors were worried that political wrangling may delay the process of solving the EU's debt crisis.

CLSA sees 20% downside risk in Asian markets, Balanco informed.

Below is the edited transcript of Balanco’s interview with CNBC-TV18. Also watch the accompanying video.

Q: Does it look like we are bracing ourselves for a couple of months of pain this summer across global equity markets?

A: Yes, I think since that February peak we have seen one market at a time really putting a short-term topping pattern at least and seeing a breakdown.  Now we are starting to see that damage being reflected in the US market, which has been the outperformer from the October lows. So, we are setup and we do have the technical setup at least for a synchronized global correction running through the summer months.

Q: Would that view coincide with what you are seeing on the Nifty, more downside from here after breaking below 5000 yesterday?

A: About a month ago we were talking about the 5,100-5,200 area being a very key area for the Nifty to sustain the move that it made off the January lows. The fact that we broke below that this week and we stay below 5,200 to us suggests the base case scenario that the Nifty is trapped back in the old trading range between 4,700-5,100.Obviously the near-term risk in a seasonably weak period is a test of the 4700 area again.

Q: The question we are asking a lot of fundamental guests is whether in the first two months markets such as India actually made the highs for the year. Technically do you see any evidence of that?

A: If you had a slip below the 4,700 that would mark a very significant peak at the 5,700 rebound high that we made earlier this year. If you look at the Nifty priced in US dollar terms it does paint worst picture than we are looking at in local currency terms, because that downtrend was never broken from the November 2010 peak.

So if you are looking at it in US dollar terms you are still within that downtrend channel and you haven’t seen a break out of that. It has just been in local currency terms that in January we did make the move up to that 5,700 area. So for us base case scenario is that we need to rebuild a basing pattern between 4,700-5,100 area. If we had a slip below 4700 that does see the technical picture deteriorate even further.

Q: Just to understand the global context of the correction though, what kind of levels are you watching on key indices like the S&P now?

A: If you are looking at this 1,350 area which the S&P has been oscillating around for the past few sessions, a break below that gives us a minimum downside target of 1,288. For relative return investors if you are comparing markets across the globe we still see the developed markets are looking at the MSCI World versus emerging market indexes as developed market really dominated by the US market outperforming through this corrective phase and emerging markets where the greater downside risk is.

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