Beware! Nifty may test 4,800 if RBI disappoints: UR Bhat

However, UR Bhat, MD of Dalton Capital Advisors is worried that the market may again fall to 4800 if RBI fails to please the street by its monetary stance.

In an interview to CNBC-TV18, he said, "4,800 is from where we started the 4-5% current rally. That is probably insight if RBI disappoints on Monday. Again the political realignment as a run up to the presidential election raises risks for market. I think 4,800 is a reasonable level of support but if for example RBI is able to surprise the market on the positive side then I think there could be some more jubilation in the market."

He also adds that easing by central banks in developing market will lead to equity rally.  As an investment strategy, Bhat advises to use rally in banks as a good exit opportunity.

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying videos.

Q: Sunday is an important day. What do you think the market has priced in on the Greek elections?

A: I think the market has priced in a magic wand that the RBI is going to wave on Monday. There are enough problems that we have on the political side, economic side and on the policy side and yesterday’s move about the presidential nominee has brought one more layer of political uncertainty onto these problems that we already have.

In Greece, on Sunday I think all bets are off in the sense that any outcome is possible. But initial indications are that it is not going to be dramatically different from what happened a couple of months ago. Therefore, as far as uncertainty in Europe is concerned, it is probably going to rise and Spain is in worst position than what Greece went to election with.

Therefore, I think the amount of uncertainty that we are seeing in the market is increasing dramatically. The 4% rise that we saw month-to-date in the market to this month is largely based on the hope that RBI can solve all our problems.

Q: A lot of global market watchers are pointing out that come July there is probably going to be another wave of selling which will limit all these gains we have seen so far. What would be the likely outcome over the course of the next few weeks for the market in terms of upside potential or a deep correction?

A: Upside potential is somewhat limited, given what is likely to happen and the sort of pain that is going to come out of Europe. I think the news flow from Europe is going to be continuously bad as far as the markets are concerned. Domestically, we have the presidential election coming up and so there is likely to be some more political realignment.

Therefore, that is going to add one more layer of uncertainty to the market. In addition, you have problems, whether it is on the fiscal side or on the interest rate inflation side. We are really settling down to a low growth, high inflation sort of cycle and breaking out of that is going to be very difficult only through monetary means. It needs government intervention and that is what the market expects for it to really go up dramatically from here.

Q: Do you think the RBI will deliver on market expectations on Monday?

A: I think the expectations are far ahead of what RBI can deliver as of now, given the 4-5% increase that we have seen month-to-date based on the policy action that is going to come on Monday. I think unless RBI cuts CRR dramatically, by more than 1 percentage point or something like that, the market may not be satisfied. That is something we need to watch very closely.

Also read: 50 bps rate cut to push Nifty towards 5300-5400: Baliga

Global events important than 25 bps repo cut: UBS India