Dec 21, 2012, 11.58 AM IST | Source: CNBC-TV18

Beware of heady mkt mood; pick stocks bottom-up: Experts

Anand Tandon, CEO, JRG Securities and Harendra Kumar of Elara Capital advise, on CNBC-TV18, investors to be cautious of the mood of increased optimism oblivious to facts that indicate a sober pace of growth. Technical analyst Sudarshan Sukhani of s2analytics.com recommends investors to stay away from the Nifty which has been in no-trade session

Anand Tandon, CEO, JRG Securities and  Harendra Kumar of Elara Capital advise, on CNBC-TV18, investors to be cautious of the mood of increased optimism oblivious to facts that indicate a sober pace of growth and no decline in either inflation or commodity prices. The experts also suggest investors follow a bottom-up approach while selecting stocks.

Technical analyst Sudarshan Sukhani of s2analytics.com recommends investors to stay away from the Nifty which has been in no-trade session, unable to breakout of the 5920-5850 range.

Below is an edited transcript of Anand Tandon's analysis.

Q: What do you make of the impact of the election results in Gujarat on the Nifty's movement?

A: I don't think there has been an impact. I think the election results were pretty much in line with the exit polls. Though in the morning it did look like the exit polls may have been overoptimistic, but by the time the results were announced, it was clear that it was in line with expectations. I don't think that this is going to change anything dramatically in the near term either for the markets or for the polity in India. So, I wouldn't read too much into what's happening. I think the economy is a lot more interesting at this stage.

Q: The Nifty hasn't been able to see touch that 6,000-mark as yet. What is your outlook going into 2013? Would you be positive about the Nifty reaching new highs?

A: I think the market mood is extremely positive and that is a sign of caution. When 2012 began, the mood was extremely negative and the results show an increase by 25 percent or more up.

I think for the next year we are already factoring-in most of the positives that are likely to happen. But the current market excitement is underpinned by two factors- on the assumption that the commodity prices, especially oil, will come down and the assumption that there will be a slowdown in inflation which will allow the regulator to cutting interest rates. In reality, neither oil prices nor inflation are showing an signs of declining.

So, if either of these two factors were to reduce, the market will be in for a rude shock. Broadly the near-term momentum seems to be positive. Investors in the market could just put a trailing stop loss and trade with it. But the outlook  for next year is a lot more muted than the current year.

Q: Can the market expect reform after the end of the winter session and before the Budget?

A: The Prime Minister has already indicated that the government plans to initiate a rise in power, rail and fuel tariffs. This leads me to believe that it is very unlikely for inflation to actually come down to below-7 percent. If the RBI was to cut rates without the inflation falling below 7 percent, its own creditability will be at stake because it has kind of gone out on a limb saying that it’s their level of comfort. Without that I don’t see the market running away anytime soon.

Q: In your opinion, do you think the over-6,000 levels will be sustainable?

A: I think the probability is very high in favour of the 6,000-level being unsustainable. The expected sustained fall in commodity prices and reduction in interest rates are right now under question.

There is a likelihood the Sensex will actually fall, not rise, because this year there has been single-digit growth and the consensus estimate seems to suggest that growth is to be back at more or less at trendline levels- 17-18 percent growth next year.

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