Mkts may stay volatile but in a range: Analysts

Nifty BSE | NSE 13/02/12 Are Mutual Funds betting on Nifty?

After a sharp bout of sell-off, Indian equity markets have retraced somewhat after what was an almost one-way, upward rally in the past six months. The National Stock Exchange's 50-share benchmark index, Nifty, after reaching a 17-month high of about 5,150 recently, has now retraced to trade close to 4,700 levels. On Thursday, the Nifty closed at 4,765.55, up 54 points.

The recent correction would also give some relief to investors who were not buying stocks on valuation concerns - that prices had reached above actual expectations of earnings.

How the markets may fare ahead

With the second-quarter earnings season over, the markets is now expected to concentrate on foreign fund flows in the next two-three months, believes Investment Analyst R Balakrishnan. "I see a little bit of nervousness on fund flows and naturally when there is uncertainty, investors don't like it," he said.

However, Liquidity across the globe may continue to be benign, says Satish Betadpur of Independent International Investment Research. "Inflation [in the US] continues to be non-existent and the fiscal stimulus packages are continuing for now. So I think there is a benign environment in the US and so we should see a decent move in the US, which takes the rest of the world upwards," he said.

"However, If we take a more medium- to longer-term view, these swings are good opportunities for investors to pick up stocks," said Betadpur. "Yes, we may drop other 100-200 points on the Nifty but my gut feeling in our view is that we are probably poised for a 5-10% rally going into the end of the year from hereon."

Given the current volatility in the market, traders could buy some of the sharp dips in the market, Balakrishnan said, but advised keeping strict stop-losses.

How you can position yourself

"Personally I am not into a very high beta at this point because there is going to be volatility," Betadpur said, adding that he was buying IT with Tata Consultancy Services (TCS) as the lead player and some small public sector banks apart from a private one like Axis Bank.

"The big play where I think there will be a decent recovery is an infrastructure. Stocks such as Larsen & Toubro (L&T) and JP Associates will come back because their core is still strong. They are getting good order books, they had some non-cash adjustments that happened this quarter," he added.

View on PSU IPOs

Balakrishnan hailed the news that the government was increasingly looking to list public companies and divest stake in the currently-listed ones in a bid to raise capital to bridge the fiscal deficit. He, however, added that in case of initial public offers (IPOs), the government may need to price the issues a little less than it did during the recent IPOs.

"During the last PSU disinvestment, the pricing was probably a bit too steep and didn't leave anything on the table. So I think the government has to leave anything on the table," he said.