ECB meet, Q1 earnings to determine market direction: Emkay

According to him, the European Central Bank (ECB) meet and first quarter earnings of FY13 are likely to determine market direction now. Both the Bank of England and European Central Bank monetary policy is scheduled tomorrow. The BoE is expected to resume its asset purchase programme while the ECB is seen cutting interest rates by 25 bps.

In an interview to CNBC-TV18, Karwa said, "After having moved almost by 8-9% in the month of June the market is in a consolidation mode for the last three-four days. It is waiting for further global cues to take a sense of its direction. Investors and traders are cautious and wouldn't want to take any aggressive risks."

At the same time, he also believes that midcap is likely to continue to outperform as domestic institutional investors (DIIs) are active in the sector and are willing to take small bets.

As an investment strategy, Karwa recommends MindTree , Hexaware and NIIT Tech in the midcap technology space.

Also read: See rally in India, cautiously optimistic: Baer Cap

Nifty in consolidation mode; 5150 key support: ICICI Direct

Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying videos.

Q: We have had a pretty reasonable pullback for the market. How are you approaching the rest of this series? Do you sense that there is more upside or do you think we are going to get back to some range trading for a while?

A: I think the markets after having moved almost by 8-9% in the month of June are in a consolidation mode for the last three-four days. They are waiting for further global cues to take a sense of its direction. Investors and traders are cautious and wouldn’t want to take any aggressive risks.

I think the result season is on and based on earnings outlook and actual earnings, the market will take a further direction. Also you have the upcoming ECB meeting and the expectations of a rate cut. If something like that comes on and then there is a global rally then we could also participate, otherwise it would be led by domestic factors.

Q: Between these global and local cues, the RBI policy, monsoons, earnings or even the global cues that are lined up, which ones would assume most importance now according to you?

A: I think that our markets are primarily driven by liquidity flows which primarily come from overseas. I think that’s a very important factor to look at. Then I think the domestic factors will come into play. If you have to choose between the two, then global liquidity flows will be very important.

Having said that, I would like to bring to your notice that last month we had a 7-8% rally despite any substantial FII or global liquidity flowing into our domestic markets. Sometimes your local valuations become attractive and that creates its own uptick in the market.

Q: What's your sense of what we may see first? Do you think it's likely we will see the Nifty pierce the 5600 mark or more likely we get back to that 5000-5200 kind of zone and then the market just drifts along for a while?

A: I don't think we have the foundation for having a sharp rally at 5600. But it would be very, very stock specific and that should be the way going forward, rather than taking a call on Nifty. The markets are becoming reasonably broad in terms of depth, in terms of number of stocks which are performing and have been improving of late. I think investors are more willing to look down just a step below the Nifty 50 stocks. We are seeing a more broad based market of late.

Q: Tactically then you are pitching for midcap outperformance this month?

A: I guess so. We believe that there will be a stock specific outperformance, whether it is midcap or largecap. But it would be more bottoms up driven than sectoral driven because on a sectoral basis, you can find negatives in almost each and every sector. However, on a bottoms-up basis there are always stocks which will outperform despite the headwind in their sector. Hence, investors have become very bottoms up and stock specific.

Also read: Nifty to break 5270-5320 range either way soon: Sukhani