2010 to see range-bound market: Edelweiss

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2010 to see range-bound market: Edelweiss

In an exclusive interview with CNBC-TV18, Naresh Kothari, President, Edelweiss Capital, spoke about his reading of the market going forward.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Investors cautiously optimistic on India: BNP Paribas Balanced Budget-led rally coming to an end: Infina Fin ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Tata Motors | Ashok Leyland | Jubilant Foodworks | State Bank of India | Bank Of Baroda | ICICI Bank | HDFC Bank | Pantaloon Retail | Titan Industries | Bharti Airtel | Idea Cellular |

In an exclusive interview with CNBC-TV18, Naresh Kothari, President, Edelweiss Capital, spoke about his reading of the market going forward. He also discussed the road ahead for DQ Entertainment 's initial public offer (IPO) which opened for subscription on Monday (March 8) and would close today (March 10).

Below is a verbatim transcript. Also watch the accompanying video.

Q: The market has gone a bit quiet after the post-Budget flurry, do you expect most of March to be this lackluster?

A: Pretty much. I have been maintaining that this entire year you will see markets being range-bound although this has been a good Budget and we have seen an uptick in the whole range. I still feel given that there is reasonable amount of supply of paper that we are expecting. There will be money coming in and the market will sort of keep on trading in a range. A billion dollars coming in, market moves up 1,000 points but after that again paper supply will takeover.

Q: How tight or narrow do you reckon the range might be for the market this time around?

A: I have been in the 14,000 to 18,000 kind of a range on the Sensex. I maintain that range. I think every time that it goes beyond 18,000, you will start looking at valuations becoming still expensive. Also, supply of paper will become even more aggressive. But anytime it goes below 15,000, touching the 14,000-odd range, valuations become attractive. Paper supply stops at lower levels; you suddenly see lot of interest coming in. So we should be in that broad range at least for the next quarter or two till we see numbers pickup.

Overall otherwise our view has been that this year is going to be pretty positive for most sectors. So we have seen the Budget being pretty positive across sectors. So I do not think fundamentally there is any problem as such, its just that we will have a lot of supply of paper therefore the market should be more sideways. And we are not cheap; at 17,000 index levels we are no longer cheap so therefore there is not so much headroom for growth from an index perspective.

Q: NMDC opens today, what is the general consensus and what are you telling your institutional clients to do on that?

A: We are one of the lead managers in the issue so don't know how much I can tell you. But of course we have been very positively inclined about the company. This is the strongest natural resources company in the country; it is also one of the strongest public sector undertaking (PSU) that the country has, very strong company; extremely efficient management, extremely efficient operations, very strong cash flows and strong cash reserves in the company, very high quality ore reserves, probably one of the best in the world. So, strong set of positives for the company.

Q: How would you defend the criticism though that the market has put out on the pricing-at Rs 350 they reckon it looks a bit expensive not just against its domestic peers but even its global peers?

A: The price range is Rs 300 to Rs 350 and one of the things that we can also look at is it has been at a substantial discount to the price which has prevailing when the EGoM took over-that day the price was Rs 400. So it has been priced at Rs 300-350, which is about 25% discount at the lower end and about 12-12.5% discount at the upper end.

So it has been a reasonably strong discount to the market price and if you look at one-three-six months average market price that is higher than the Rs 400 price range. So there is very strong discount that has got built-in. Of course the stock has been trading at those levels for a very long-time so there is only so much you can do eventually.

According to us, we are seeing strong interest from long-term investors because if you look at a lot of sovereign funds who want to take a big piece out of India, this is going to be one of the big opportunities because this is a company which is upwards of USD 20-25 billion of marketcap. So it's a very large company with a large float.

We are seeing strong interest from people who understand this sector well, let's say a lot of the Australian funds and people who are in the natural resources geography already, are seeing very strong interest in the company. The reserves of this company are probably the highest quality in the world, the iron ore reserves. I do not think any other company of this scale has this kind of quality reserves. So we are seeing a lot of interest coming from those quarters and of course domestic mutual funds, domestic insurance companies, domestic banks everybody is very keenly looking at and evaluating and investing and is expected to invest into the transaction. So we are seeing reasonably strong interest across.