If no Fed rate cut, may see profit booking: Notz Stucki

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Anil Singhvi , Partner at Notz Stucki is largely tracking global cues, and he believes, the markets may be in the last leg of the bull run.

He expects Fed to cut rates by 25 bps. If that does not happen, there may be profit booking. Key concerns include politics, US and global slowdown and a populist budget.

Excerpts from CNBC-TV18's exclusive interview with Anil Singhvi:

Q: We had a bit of a dip, but it was not a significant dip and we are back within 5-6% of the all time high. What's your sense of the market? Can we get away with such a mild correction?

A: I think now the markets are surviving on day-to-day cues on the basis of global cues. So I don't think today Indian markets are really tracking Indian fundamentals; they are largely looking at global cues.

But this is perhaps the last leg of the bull run, for the simple reason that I am seeing penny stocks going up on daily basis. If some stock comes into F&O and goes by 20% circuit, that shows clearly that fundamentally nothing changes it, only becomes a players market. So I think it's a day traders market rather than fundamental stock pickers market.

Q: What do you do as an investor? Is it risky to take large cash call and sit out for big dip or you have no recourse but to participate since prices continue to remain firm?

A: We are a long-term player and so we don't have hedging or derivatives available to us on this. I do not participate in that view also on this. So we are looking at wherever pocket of value is available to us, we remain invested. We remain invested for three-five years. So daily indices don't matter to us as much that we get excited or nervous on daily basis.

So today challenge before us is that whether we can get some values where three-five years growth stories are in place, which are becoming increasingly difficult, I must say, in India. So today the challenge is basically to find some good growth story for three-five years and remain invested in that.

Q: What do you think will happen over the next few weeks if the rate cut does come in from the Fed, do you think we might setup for a rally and then a cut?

A: I think it will be a reversal of what happened in September. After the cut, the rally came in and this time the rally is before the cut. So I suppose and hope that 25 bps cut with market expecting and perhaps even making Fed to agree on 25 bps cut, should be there.

It will be more or less on predicted lines and should Fed decide not to cut it, we may see a bit of profit taking and bit of a problem on that, because soon after that we are going for a vacation where there will not be much of buying or selling.

So December 11, is going to be a crucial date from the point of view of day to day trading, but long on funds like us, we don't even track these kind of events. If Fed is going to cut the rates, and that under the pressure, I think it's going to be a very unfortunate situation. Complete reversal of what Fed has been known for in the last 20 years.

Q: Did you participate in Mundra? Any thoughts on that stock and the way it's listed?

A: Mundra is a good port. It's one of the only ports in India and private sectors, it's a well positioned port. Gujarat will be a gateway for most of the northern markets for everything one needs to source. I think it's strategically located, it's a well mechanised port, infrastructure-wise, but when it got listed at Rs 1,100-1050, it was too high.

So I think it will correct for the next couple of days, before it comes to a sensible level and then one has to see the three-five year view rather than taking a day-to-day view on Mundra Port. One aspect, where one needs to play it down is that the infrastructure stocks are a three-five year play and they cannot be on day-to-day basis.

Q: What are your key concerns on the market aside of valuations?

A: I think somewhere we seem to be taking the whole political scenario panning out and putting it under the carpet, which may not be a right thing. My personal fear is that next year, 2008 globally also is going to be a very uncertain year; US will go through elections, there will be a slowdown of US economy, which will have its own impact on Indian economy as well. Second issue, we may see populist measures coming in, in next year's Budget than economic.

So I think we may see 'aam aadmi' kind of talk taking place in Budget, rather than the economic theme of the Budget, going forward. In any case, in the last three-four years, this government hasn't done much in terms of reform and I see a complete non-existence of reform processes in next year's Budget. So those are the cues, which are going to be disturbing in terms of how Indian growth story will pan out.

Q: Do you expect to see any more capital control measures as well and how would you approach these rupee sensitives now?

A: I think rupee is finding its own level and let's not get overly obsessed with rupee-dollar, because dollar globally is also becoming a weak currency. So just to look at the rupee-dollar parity and say rupee strengthening may not be a right idea. Look at other currencies and how rupee is working out on that and that perhaps will give a cue that rupee is not appreciating the way people are making it out to be. So I don't think we need any more capital control, if that is the question.

I don't think as an economy today, we need any sort of control. What we need is perhaps opening of the economy further, which we haven't done in last three-four years; whether pension, insurance, all these decisions are pending. So today we need to take some more bold steps. In the last three years, we have lived on basically what was done in the five-year rule of the earlier government.

So we need to take the next level of reforms in place for us to see the growth of 9%.

Q: How are you approaching those two popular oil stocks, RPL and Essar Oil now?

A: They are very interesting stocks. My personal experience of 25 years in corporate sector gives me goose bumps on this as to how can one have refinery yet to take place, product is yet to come out. One doesn't have to see the refining margins today; one got to see the refining margins in 2008-09 and market seems to be going completely berserk on those two stocks. So we are baffled, but we are watchers from a distance. We see it with lot of amusement as how market perceived these kinds of things.

As I was telling you, I am seeing a complete reversal of what has been the quality and qualitative aspect of the Indian markets to be a complete momentum plays.

Q: You think it's more likely, we will see 18,000 mark before we see more than 20,000?

A: I don't go by prediction of the indices, but I see that pockets of value available for long funds like us, are very limited. I don't see much money coming into these valuations. Right now we are seeing not much of selling even by the P-Note holders, because they can't buy anything. So there is an absence of selling rather than large buying taking place. So markets are holding on and they may hold on for some more time until such time, we'll see some selling take place.

Disclosure: It is safe to assume that my clients and I may have an investment interest in the stocks / sectors that have been spoken about.