Don't expect mkts to pullback sharply: Kotak Sec

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R Venkat Subramanian , Head-Alternate Investment Group, Kotak Securities , said to expect any sharp pullback in the market would be unreasonable as corporate sector is entering a difficult phase. "We are going from a somewhat tight Monetary Policy to an outrightly restrictive Monetary Policy, and from a somewhat uncomfortable inflation to runaway inflation. With all this the resultant impact will be higher interest rate and higher costs for corporates."

He feels the stage is set for a reasonably sharp contraction in margin for companies and the corporate sector as a whole. "Even liquidity is drying up. One is not going to hear a lot of positive news from overseas economies as well. The worries are going to be the quarters that are ahead of us. It has all the underpinnings of a difficult financial year for us from hereon."

According to Subramanian, long-term investors will be able to find attractive opportunities over a period of time, instead of looking for a particular price to buy. "When a market falls like this, there will always be stocks that bottom out, before the broader market bottoms out. So, opportunities will start emerging. Investors need to be somewhat choosy on what price they would like to buy."

Excerpts from CNBC-TV18's exclusive interview with R Venkat Subramanian:

 

Q: Do you see a significant upside in this pullback in the near-term or fairly subdued rangebound market for the next few weeks?

 

A: It is difficult to look for a steep pullback from here. I do not know whether we can call what we have today as a pullback. It looks more driven by F&O positions and expiration than with a new dose of optimism.

 

Clearly, the worst fears are coming true for the broader market and the economy. We are going from a somewhat tight monetary policy to outright restrictive monetary policy and from a somewhat uncomfortable inflation to runaway inflation. With all this, the resultant impact will be higher interest rate and higher costs for corporates.

 

We are entering into a very difficult phase for the corporate sector. So, to expect any sharp pullback in the market would be unreasonable. So, whatever we get would be because of the adjustment process than because of any new optimism.

 

Q: Can we look forward to any improvement in earnings season in July or is that hoping for too much?

 

A: The current quarter results will perhaps not be that devastating based on the advance tax numbers. It does not look like it is going to be such a bad quarter.

 

But the stage is set for a reasonably sharp contraction in margin for companies and the corporate sector as a whole. The worry is going to be how the rest of the year is going to shape up and for that the expectations are going down and rightly so.

 

We also have a situation where in spite of the global series of rate cuts, liquidity is perhaps also drying up.

 

One is not going to hear a lot of positive news from the overseas economies as well. The worries are going to be the quarters ahead of us. It has all the underpinnings of a difficult financial year for us from hereon.

 

Q: Is sentiment at an all-time low as well?

 

A: We are almost getting there. Investor sentiment has been down for the last two-three months. But slowly, now even the corporates are beginning to question their own optimism as to how things will shape up. So, that is even more dangerous.

 

From a consumption point of view, the slowdown is already been seen. Now, we may have to actually live with a slowdown at the investment level as well, if the corporate sector confidence sags with rising interest rates, tight liquidity and increasing raw material cost.

 

There is going to be a bit of crisis of confidence at the corporate level, which will hurt the investment sentiment as well.

 

We are hitting a low both from a consumer as well as investment sentiment. If there is a dramatic turnaround in oil prices, we would be able to lift ourselves up from the current downbeat sentiment. But without that, we are still staring down a situation where companies are talking about cost cutting and things like that than on any new initiatives.

 

Q: What would your own analysis be for an investor? Do you think an investor needs to hurry and pick up anything at all? Do you think there is going to be plenty of time?

 

A: From a long-term investor point of view, we are getting to a stage where we will be able to find attractive opportunities, particularly those investors who are willing to buy over a period of time instead of looking for a particular price to buy.

 

Clearly, it is going to be difficult for anybody to pick the exact bottom. At the same time, when a market falls like this, there will always be stocks that bottom out before the broader market bottoms out.

 

So, from that point of view, the opportunities will start emerging. You need to be somewhat choosy on days when you want a price at which you want to buy.

 

Q: Any stock or sector where you think that opportunity has already emerged?

 

A: To some extent, the banking space looks like it is completely washed out. Apart from a serious impairment of assets or a complete recession where there can be significant incidences of NPAs, banking stocks look like they have priced-in the current interest rate and bond market problems. So, maybe there are some opportunities emerging there.

 

Even in the capital goods space, there are companies that have strong 3-4 year order book visibility, which are trading at some reasonable valuations. So, you would find these opportunities in some of the beaten down sectors, which are anyway part of larger and broader secular themes.