Dec 21, 2005, 07.39 PM IST | Source: CNBC-TV18

Don't short sell at this point: Dhawan

Sajiv Dhawan of JV Capital Services says that there is a lot of volatility in the market at the moment, and it is here to stay. Dhawan feels that clients should not short sell at the moment.

On short-selling.

Sajiv Dhawan

JV Capital Services

Sajiv Dhawan of JV Capital Services says that there is a lot of volatility in the market at the moment, and it is here to stay. He feels that the valuations are stretched at this point.

Dhawan feels that clients should not short sell at the moment. For a short-term trading call, one should use a fall or a sharp correction to re-enter the markets, he adds.

Excerpts from an exclusive CNBC-TV18 interview with Sajiv Dhawan:

Q: What has led to the sudden slide in the market?

A: I think that the volatility is here to stay. The markets are at all time highs. The higher it goes, people are going to be a bit nervous and take a bit of profits. One has seen very good flows continued by the FIIs. But at the same time, one has seen domestic funds and mutual funds sell off. A lot of investors are selling. They are expecting the markets to react. The movement of the market has been very fast. I do not think that anyone would have expected these sort of levels at such a pace.

Therefore, the volatility is there. A 20 point fall on the Nifty is not significant. But if one looks from the day's highs, then it does look a bit nasty. A lot of people are getting stuck. They are the short-term traders.

I really feel that valuations are stretched and we are looking for reasons to justify the valuations now, rather than the other way round.

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Q: Do you think it is one of those violent running corrections in an upward trend or is there is more to it?

A: At these higher levels, the tendency is still to be long in the market, even though the markets have fallen off. It is not easy for short sellers or bears to come in and drive the markets down because whatever slight positive news companies are making, is being lashed by the bulls.

So based on the past trend of the company, I still won't advice clients to short sell. I would say that one should use a fall or any sharp correction to re-enter the market. But that is purely for a short-term trading call.

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Q: What is happening in the sugar space? Is it seeing a consolidation before it moves again?

I think it is in a consolidation phase. It is a sector which was quiet and which came back in the limelight. There was a good run up in virtually all the sugar stocks. From a speculator's perspective, they are reasonably priced to enter.

With the current momentum in the market, sugar is one sector that is looking attractive still. But I will pick it as a momentum play. It is one of the sectors to be in, at the moment. Probably one will see most of the sugar stocks continuing to do well for the next couple of weeks or so.

Q: There are two IPOs- Everest Kanto at Rs 275 and Kernex Microsystems at Rs 352. What are your thoughts on where they are listed and where they are trading right now?

A: Like all the recent IPOs, they have done very well. There is some selling after listing. But in this type of market, where the IPOs are still being priced at the higher end of the price bands, there seems to be plenty of appetite. I think that is purely based on the speculative nature of these stocks. Anything that is getting listed now, is commanding even higher valuations than the listing price.

I do not think that they are justified by the valuations in the short-term. But one cannot argue with it. If one looks from a speculator's point of view, then he would probably apply for every single IPO that is coming out because one is making good profits in them. The momentum remains in these IPOs.  Investors really do not know about the fundamentals of these companies in much details. Therefore, any slight positive news is taken.

Q: Do you have any thoughts on McDowell and the move that it has made today after a long time?

A: The brewing industry as a whole had a very good run up earlier this year. McDowell is a stock, which has calmed down from the stock movement. But even at the current price, it is more of a portfolio stock now rather than a momentum play. There might be some positive news flow coming in. But it is a stock that has gone off the radar screens for many, because there has been such an exponential rise in the stock price over the last one year or one-and-a-half year.

It is a momentum play, but I will not be rushing to look into that stock at the current level. I think that there are other momentum stocks in the market, which can give better returns with maybe a lower risk profile.

Q: Zenith Computers says that it will do 20,000 laptops and get 10-14% market share. Does something like this excite you?

A: The management is being positive, when it has to be. But the fact of the matter is that the market is just looking for something new to invest in. There is so much money out there. People are taking profits from various other stocks and sectors. They need a new story and a new stock to buy everyday. One can see managements of various companies coming out with new acquisitions, and the market is looking into all that without analysing it.

I would play all these stocks with the momentum. We have to wait for the results. Unless what the management says, gets delivered by the results; at the end of the day, these prices will come off very sharply. That has happened before and it might happen again when this market comes back to some sense of reality, unless results keep up with expectations.

Q: The steel space is a bit subdued as you would expect with Posco cutting prices. How would you play it from here?

A: Obviously, there is negative news for the sector today. But we have maintained for the last couple of months that steel as a sector, is only for the longer-term investors. It will not be one of those sectors which was buzzing earlier this year.

Now one has to buy steel companies based purely on the fundamentals, rather than the momentum.Stocks like Tisco and Steel Authority of India  still look reasonable. If they fall down 5-10% from the current levels, then I would definitely buy them. But if one is trying to play them for a short-term momentum, then it will be difficult because these global events and facts on the commodity prices are difficult to predict.

One could take some short-term trading losses, which obviously a medium-term investor will not be too concerned about.

Q: Banks are a big disappointment today. What is happening in this space, because it has become quite volatile?

A: It is a sector which I like going forward to the next year. But in line with the market, prices of a lot of banks have risen very sharply. There was some news again about the PSU banks that the government is not going to increase the limit, which was expected. That has obviously dampened sentiments again.

Therefore, at the moment there is a lack of positive news in the sector as a whole. It is a very speculative sector with so many banking stocks there. So a bit of natural profit taking is there, which does not unnerve me. If one sees another sell-off, maybe 10% from the current levels, then I think there is something to worry about. But I do not see that happening in the sector. If any sharp correction comes in the banking sector in the next few days, it  would be a reasonable opportunity to enter; but again with a longer-time frame on a delivery basis because I do expect this sector to do very well in 2006.

Q: Will you buy VisualSoft as a part of your midcap technology kitty?

A: There has been a lot of talk about VisualSoft since Rs 200 levels. Finally, it has moved up. It has been a relative underperformer. Based on what has been said today, the valuations do not look stretched in this particular counter.

It will probably consolidate and maybe it will move in a band of 3-4%. Once it settles down, an investor probably could come in. I am sure that we will have some more news on the counter. It is definitely one of the midcap technology stocks, which could outperform in the short-term.

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