Weak data to push Nifty into 4500-5000 band: Morgan Stanley

“I think the global situation is pretty much assumed to be a muddle through situation for right now, and therefore all eyes are on the domestic front as to what we get from the government in terms of policy initiatives and what sort of progress we see on that front,” he said in an interview to CNBC-TV18.

He goes on to say that the market is holding high hopes from cues going forward, and therefore there is a chance that we experience some disappointment as we move into earnings season. If such a scenario materialises, Morgan Stanley expects the market to fins strong support at 5000, 4900 and 4800.

However, Doshi says the potential negative newsflow could make it difficult for the Nifty to even hold on to 4500.

“If you get some sort of major crisis out of Europe, if we see no progress, no outcome or no feasible roadmap post this EU Summit, if we see actually nothing in terms of the expectations that we have from our Indian government in terms of policy and reform, then I don’t see why the market will continue to hover and trade above 4800 mark,” he explained.

Therefore, he sees a situation where the market moves into 4500-5000 band.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.

Q: Are we going to be stuck in a range, grinding here for longer, or are you expecting a risk-on phase globally?

A: I think globally there seems to be a lot of downside risk versus what the markets are expecting, even whether it is from the EU Summit or whether it is from US data. Having said that, I don’t think a muddle through gloomy global environment is that bad a situation for India provided we get a lot of our domestic internals right.

I think India today is grappling with a lot of domestic issues, currency, liquidity and policy being the three major things, and I think our market is going to be primarily influenced by these factors at least in the immediate near-term. I think the global situation is pretty much assumed to be a muddle through situation for right now, and therefore all eyes are on the domestic front as to what we get from the government in terms of policy initiatives and what sort of progress we see on that front.

Q: What are you working with in the months to come - for the market to remain rangebound in this 4900-5100 zone, or do you expect a sharp selloff come July?

A: Last time when I was around I talked about two ranges and I think those two ranges continue to hold. Put it simply, 5000-5600 seems to be the broader upper range with a hurdle at above 5250. We have got domestic and global triggers, and if both play out, which seem unlikely, then there is likelihood we move towards that 5600 front. If we get one of the two cylinders firing then we have 5200-5250 range.

But unfortunately it seems like the market is expecting too much and there is room for disappointment, especially given that we are moving into earnings. So a break under 5000 would put us back into the 4500-5000 range. Even though we believe that 5000, 4900 and 4800 will prove to be meaningful support levels, unfortunately our view is that the sort of potential negative news flow could take the market down, either globally or locally, and it would make it hard for the market to then hold onto the 4800 support.

If you get some sort of major crisis out of Europe, if we see no progress, no outcome or no feasible roadmap post this EU Summit, if we see actually nothing in terms of the expectations that we have from our Indian government in terms of policy and reform, then I don’t see why the market will continue to hover and trade above 4800 mark.

Read on for Morgan Stanley's views on individual sectors..