Feb 01, 2010, 12.53 PM | Source: CNBC-TV18

Don't see Nifty testing 4500: Dalton Capital

UR Bhat, MD, Dalton Capital Advisors sees a further correction in markets if the fund flow trend continues. "ETF money is getting withdrawn due to recovery in US markets." But does not see the Nifty testing 4,500 levels.

UR Bhat, Managing Director of Dalton Capital Advisors sees a further correction in markets if the fund flow trend continues. " ETF money is getting withdrawn due to recovery in US markets." But does not see the Nifty testing 4,500 levels.

He feels the Budget will be tough on the back of high fiscal deficit.

Here is a verbatim transcript of an exclusive interview with UR Bhat on CNBC-TV18. Also watch the accompanying video.

Q: Do you think Nifty might stabilise around 4,800? Would you expect to see a deeper cut in February?

A: Possible because for the first time over the last 12 months, we are seeing foreign portfolio investments negative for the last few days. January has not been a very good month for foreign portfolio investment even though the first half was very good. The last week or 10 days have not been good for foreign portfolio investors. Given the fact that large part of the rally was on account of liquidity being pumped in by the foreign portfolio investors, there is likelihood that if this trend continues there might be further correction in the offing.

Expect that all effort should be made to ensure that NTPC issue is a success. Therefore, there might be some short-term fillip given to the market whether from the government or other sources.

Baring that, there is nothing much to expect because we have the budget four weeks away. All indications are that deficit is going to be much higher than what was originally budgeted with 3G auction not happening this fiscal most likely. So there are indications that it will be a tougher budget than what was initially anticipated.

Monetary policy has already been digested and absorbed but that also sprang as surprise in terms of a slightly higher CRR hike. All these things donít augur well for the market. You should be happy if it stabilises around these levels but if foreign portfolio investors continue to pullout money there might be further pain in store.

Q: This is usually the level where the market tends to stabilize or pullback though, if there were to be a deeper bout of selling, how bad do you think it could get?

A: I will go with the assumption that 4,500 will not be tested. There will be support coming in around 4,500 because last years doubling of market levels has escaped quite a few inventors, who have always been disbelieving that this sort of rally could happen.

So, there is quite some money waiting in the sidelines for a slightly deeper correction to come in and for the money to find better levels. Therefore, that is always in the sidelines except that we have anticipation of the budget. We have people not taking big positions. If the budget is over and the borrowing levels are much higher and if there are the stimulus measures being withdrawn, after that things will settle down. I donít expect market to come below 4,500 in any case.

Q: What is going on with the flows that you spoke? What is the sense you have from talking to people? Is this just profit taking from emerging markets generally or is it something slightly deeper than that?

A: Dollar has strengthened against the euro probably to the order of 7-8% over the last couplet of months. Quite a significant portion of the inflows in the last 12 months has been on account of exchange traded funds (ETFs). So these are investors who are really taking a bet on the India growth story not cherry picking Indian stocks as such. So they just take bet on India and that is largely based on growth differentials, interest rate differentials and the like.

Today we have a situation where the dollar is strengthening. The GDP growth number in US was much better than expected. So there is certainly some revival of hope and confidence in the international markets. Therefore, that money which was finding its way into India through the ETF route is probably getting withdrawn. Unless we have a situation again where dollar gives up its gains and interest rates remain at near zero levels in the US, these flows are probably at some risk. Therefore, there is always a possibility of market correcting a bit more.

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