Invest only if Sensex dips below 15,000: Ambit Cap

Q: How would you gauge risk appetite right now and the funds that may be waiting on the sidelines? If the dollar carry trade is to extend for a while, does it mean that we maybe getting a lot more by way of money interest?
A: You will do, because the markets performing funds cannot be light or underweight Indian equities. So we are seeing if people are chasing or at least trying to participate in the markets. However, a lot of it, I believe, is short-term. I am not seeing only funds coming significantly.

If there will be any more weakness in the qualified institutional placements (QIPs), you will see more selling. Hence, I don't see incrementally new flows from long. I believe that it might be the hedge funds on carry trade and arbitrage between the currencies. However, that is about it and it can move out very quickly. Fundamentally, I remain bearish on the global economy. I also think that there is something waiting to happen and it's not going to be good. From a technical view point, given what Fed said, we are going to keep interest rates low. I am just worried about whether it would turn on its head in first quarter as well. In the near-term markets, as we see, liquidity can move higher.

Q: The correction that we are fresh out off saw us under perform to a great degree compared to Asia or US. If the market hits a rough spot, do you see as a likely outcome that India might under perform and fall harder than others?
A: I think it will. We have seen a lot funds come in through QIPs or initial public offerings (IPOs). Due to this, we have seen a lot of flows. I am not saying that all of that is short-term investment, but a significant portion will be. Therefore, if they start to see the currency depreciate which it has been doing and the markets fall, then you are too near the yearend to not want to put your profits and keep your gains, since you have got investors to answer to that as well.

I suspect that whilst we have all been expecting more funds to come-in in the last two months. I believe that is not going to happen and if anything the global cues turned down, which I expect, they could do then India will probably suffer more than most in the short-term.

Q: What is your best guess of where this technically led correction could lead the Indian market down. Where would you find valuations attractive again?
A: We have always said that for this year, we expect the trading range between 13,000 and 17,000. Anything around 15,000 and below, we believe it has got value. This is where we will aggressively start picking up sectors and individual stocks as well. However, given the kind of gray area, there is too much risk. I believe, there are lots of global cues out there which are still battling in terms of what is really happening. The next leg is down globally and there is lot of bad news to come. So I would be more on the negative in the short-term than on the positive. Anything below 15,000, I would start to look at aggressively again.

Q: There is little bit of a debate on the timing of correction that you are talking about. Some believe that it's underway and will deepen into the end of this year. Others believe that the dollar carry trade may not unwind in the next few weeks at least. You could see one leg up and the real correction might actually play out in the January-February kind of period. These things are difficult to time and impossible to predict, but what is your best guess?

A: My best guess is that it is going to happen now. In other words, markets globally are going to go down from here on and we are going to start to see the dollar carry trade unwind in the Q1. However, the markets will see that happening and it will start to price in over the next few months. So in the short-term, I am more negative and in longer-term I remain positive on India. However, in the short-term we are going to see the market fall quite hard.

Q: The mood has not been completely sanguine though post earnings season. When you speak to FIIs, what did they come away from earnings season within India?
A: I think they felt it was fine. I don't think it was the fireworks which we were expecting. There was lot of bad news within certain sectors, particularly telecom. That was one of the safe havens for Indian markets in terms of a sector and has reached good weightage. So if you take that away, you put into account the problems with what Reliance is going through the court case at the moment. Adding to that no one has really believed in the banking story in terms of growth at the moment. The Reserve Bank of India (RBI) is looking to increase interest rates rather than keep them steady. This means that you have three big sectors, where you need to have some positive news to move the index and that to my mind is not going to happen.

So I think you have got both the fundamental reasons in India plus the global cues which is going to make the FIIs look again at each of these sectors and decide what and where their weightage should be. I think what you have seen in terms of weightage, going towards the consumer stocks, is subsequently moving away from telecom stocks because that was seen as a growth and safe haven.

Q: Would you say our recent move to 5,200 would more or less be the cap for the market over the next four-five months?
A: I think it is. I can make a case from liquidity to drive it back there but everything tells me that it is not going to get there in a hurry. We would be looking at what the downside is rather than the upside. In the next few months, it is going to be very difficult for the Indian markets. We are going to be down sharply over the next few months.