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Aug 03, 2012, 01.31 PM IST
Manoj Singla of Religare Capital Markets expects markets to trade with a negative bias for a few months. "The chance of a test of 4800 on the Nifty is not ruled out," Singla said.
Manoj Singla of Religare Capital Markets expects markets to trade with a negative bias for a few months. The BSE Sensex fell 100 points in early trade on Friday as the European Central Bank, after inaction from the Federal Reserve, disappointed markets looking for an imminent move to deal with the euro zone debt crisis, spurring risk aversion
"The chance of a test of 4800 on the Nifty is not ruled out," Singla said.
The Reserve Bank of India (RBI) in its first quarter policy meet on Tuesday kept its key policy rates unchanged, but slashed the statutory reserve ratio (SLR) by 100 bps to 23%. Analysts are of the view that with 'non-event' from India's central bank, next trigger could come from policy reforms from the UPA government.
However, Singla is not expecting any "significant" reforms from the government. In this backdrop, he feels, market can easily decline 10% if liquidity support is withdrawn. "We could see a PE de-rating if policymaking doesn't pick up," he warns.
Below is an edited transcript of Singla's interview on CNBC-TV18.
Q: You track Mahindra Satyam quite closely. What did you make of the numbers and how the stock should react?
A: Numbers are obviously quite decent. Given what the other players in the sector are doing, they did towards the top end of what the other sector players did. Even on the margin front while a part of it was driven by currency, I still think they surprised positively in terms of operating efficiencies we got.
So, all in all numbers are ahead of estimates. I do expect the stock to give you a good bounce from today. This is one stock that we have been positive on from sometime.
Q: What’s the call on the market? Most of the triggers have played out now. Where does it leave stock prices from hereon?
A: One has to say that it is the time to be defensive on the market. Given that a lot of the triggers have played out and we haven’t got much either from the ECB or from the Fed I think the market will probably trade with a negative bias at least for the next few months.
On the economic forefront in India itself, we obviously have had now an official confirmation that the monsoon is bad. Therefore, I think inflation would remain high. So, we do not expect any big rate cuts from RBI anytime soon. So, Indian domestic problems will continue. Economic growth continues to remain weak.
We do not see any kind of reform coming from the government anytime soon. So, one has to be defensive in this market. The classic defensives like consumers and pharma are the ones to trade into.
Q: Do you think liquidity can still keep it afloat? Many of the fundamental factors as you outlined are pointing on the opposite direction, but the market seems to be still quite resilient. Do you think benign liquidity can keep it afloat despite poor fundamentals in the near-term?
A: Yes, it could happen. That’s what’s been happening. If you see numbers for the month of July we have seen a lot of money coming in. There is a lot of debate as to whether this money is ETF money or people actually buying into India.
But I think even if you get liquidity and people buy into the market, lot of the money is still going to go to the larger defensive names.
So, people are still going to like the consumer names, the pharma names and maybe even some of the tech names. If rupee remains weak then tech could probably be more defensive sector in this environment.
The way to trade is you basically buy into all these defensives and sit there. The market could hold out the sugar of liquidity coming in, but still I think the cyclicals will underperform.
Q: Do you see major downside possibilities if we do get very ugly macro numbers over the next couple of months? GDP slips even lower and we don’t get any kind of sucker from either central banks here or central banks overseas. Is there a possibility of significant downside? By significant I mean 10% plus?
A: We have already tested 4800 earlier in the year. If you look at fundamentals now compared to where we were six or nine months back, we had in fact worse off. So, the market could easily go down to 4800 or even lower than that if things continue to remain bad.
So, as you said earlier the reason this market has been holding on is liquidity. If you do not get liquidity this market could easily go down another 10% in the next three-six months.
Tags: Manoj Singla, Religare Capital, Mahindra Satyam, ECB, GDP, HCL Tech, Tech Mahindra, Wipro, TCS, Infosys, M&M, Hero MotoCorp, Bajaj Auto, Hindustan Unilever, SpiceJet, Jet Airways, Kingfisher Airlines, SBI, Lok Sabha Elections
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