Experts rule out rally in short-term, advice sectors

RELATED NEWS Buy sugar, financials, pharma on declines: Experts Do you need to rejig your portfolio? ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

The markets started the week very close to the intermediate high. Mid-week, there was a big dip because of what happened in global markets. But Friday saw a big reversal for the market. It finally closed up exactly where it started, buoyed on by spaces that had been lying quite for a while like financials. The week was dotted by tremendous corporate activity, whether it was what happened with the sugar sector or Jaiprakash Associates now doing an IPO for its very valuable arm, Jaypee Infratech or the Suzlon stake sale. So, where does that leave the market and is momentum still nudging it on the upside?

Vetri Subramaniam, Head-Equity Funds, Religare Mutual Fund, says markets are reaching a crunch point. He foresees some rough weather in the next few weeks. "Valuations are not favourable at this juncture. A pullback to the lower end is quite possible."

Ratnesh Kumar, CEO-Institutional Equities, Anand Rathi Financial Services, too is a bit bearish. He too expects a period of consolidation. "The next leg-up is unlikely to happen before the next 2-3 months. It is tough for the Nifty to breach 5,200 over the short-term. We may break out of consolidation phase in Q1 CY10."

Sectors to look at ahead?

Kumar is overweight on IT, infrastructure and related sectors, and is underweight on financials, utilities, and telecom. "Midcap infrastructure plays can grow 30-40%." Vetri is betting on domestically driven areas and growth-oriented areas. He advises investors to look out for better business fundamentals.

Here is a verbatim transcript of the exclusive interview with Vetri Subramaniam and Ratenesh Kumar on CNBC-TV18. Also see the accompanying video.

Q: Finally, the market closes up exactly where it was at the start of this week. Are you getting a sense of where it might be headed?

Subramaniam: It is not just unchanged for the week, it is almost unchanged from where it was month ago. There has been a lot of noise, but with no end result. In a sense, there was a lot of up and down activity, but with no result. It is not very clear but the sense I am increasingly getting is that the market is reaching some sort of crunch point. Obviously, the liquidity flow has been fairly reasonable, very strong. A lot of the money is getting sucked out by all the primary paper that is being issued. But all markets have been tightly correlated and we are getting to a point where the seasonals are in favour of continuation of this trend. But this trend has been going on for so long. My sense is that we could run into some rough weathers over the next few weeks and valuations are just not comfortable at this point of time.

Q: Do you think the form and shape might be of the correction then? Will it continue to be a market that is a bit adrift or do you think that things are prime for a bit of sharp cut?

Subramaniam: From a fundamental standpoint, the markets are pretty much pushed outside what I will define as comfort zone. You really have to look at FY11 to get any sort of comfort. If you look at FY11 numbers, they are being driven more by the cyclicals rather than local domestically-driven earnings. As far as the move is concerned, I am actually at this point of time keeping it open-ended because what has been happening over the last two months is a lot of churn, but really no movements. So, we are sitting on the edge of a fairly sharp movement; whether it breaks up or breaks down, you could call it either way at this point in time. Given where the valuations are, my sense is that eventually it is going to get pulled back lower. But we have reached some kind of decision point in the road at this point of time.

Q: Where do you stand on this one - 5,200 first or back to that 4,900 mark?

Kumar: I think that sort of short range would be very hard to tell. In the last 3-4 months, the whole pace of earnings upgrades has considerably slowed down. So, you obviously had this massive surge of liquidity coming in and part of it was taken up by new issues. A lot of it found its way in the market, not just in India but around all emerging markets. But the realty of how strong and how quick the recovery is more visible in things like earnings upgrades stalling or being extremely slow in the last 3-4 months. One of the critical parameters that I look at for is credit growth. Credit is something which indicates a whole lot of other activity which happens in the economy. Credit growth has been consistently falling. It's now in single-digits. Till the time we don't have credit growth coming back, a lot of the underlying growth recovery that people are hoping for will not be there. I would think that the market has to go through a period of consolidation till either the year-end issues or the earnings upgrades don't come back. So, it is going to take at least 2-3 months before you get next leg of confidence for upgrades.

Continued on next page ...