Liquidity may take Nifty to 5400-5500: Quantum Sec

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Liquidity may take Nifty to 5400-5500: Quantum Sec

Sanjay Dutt of Quantum Securities sees some sector and stock rotation in markets now. He says that the markets are at higher end of valuations at current levels. According to Dutt, liquidity may take Nifty to 5,400-5,500. “Will take some profits at around 5,400-5,500,” he says.

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Q: Were you surprised with the way things progressed with NMDC ? When you were talking about disappointments from the government, are you referring to the way the divestment process has unfolded till now?

A: I was fortunate that I did take a position in REC . In the last year, the offering was not fully subscribed. It got subscribed in the last few hours. REC was very confident that the issue would be subscribed. The March stock future was running at a discount to about 3-4%. I did buy into that and made decent amount of money. There is too much noise being created around pricing of these offerings.

According to me, NMDC was fairly priced between Rs 250-300 range. At Rs 300, it should have been subscribed. I am not saying that this minimal divestment is going to change the way the company functions or they are going to function anyway. However, it does bring about a marginal improvement in terms of reporting, accountability and those kinds of issues that are there with these managements. I will not be surprised and might want to eat humble pie of 12-18 months later when, at Rs 450-500, we will have a same set of FIIs and long funds. They will pick up big blocks from LIC.

The public perception about stocks and sectors is so freckle in the way it changes. If the merchant bankers and everyone together in their own wisdom are pricing the offering at Rs 300 or whatever it is so be it, the market is absorbing it. Question is to go on wiping them by saying that the government is getting greedy or having a short sighted approach. I do not think that is fair because a lot of these public sector undertakings have a phenomenal amount of asset and strength in them. I am not saying they will immediately turn efficient because you have done a 10% divestment. Writing it off at Rs 300 offering and Rs 285 for retail investors is not justified.

Q: It is just that the market is not absorbing it. LIC and State Bank of India are absorbing it. Is it two government sector entities which are absorbing it?

A: You are absolutely correct. The market participants itself would actually start buying when the index crosses 5600-6000. It is the same NMDC and REC. In fact, if you recollect, NMDC was Rs 500 plus just two months back when suddenly everyone got excited about divestment process. That was also not justified.

Market was absorbing a price of Rs 520 at that point of time. The sentiments and how the market functions is very strange. I am reasonably confident that Institutions like LIC have made sensible decisions. They will make good money in these offerings when they finally divest 12-18 months later. We seriously need some long term money in this market now, which may come from LIC. When LIC puts the money we talk about government pressure. However, when you have SBI Life Insurance, Bharti AXA or ICICI Insurance buying a similar kind of stock, then we will say that probably we are wiser.

We need to look at the things from a different perspective because we work with institutions like LIC and we do not see them being stupid to go and buy anything that is available in the market. There may be some amount of government pressures at the right or the wrong time, but you just can't just ride them off as to totally functioning under government pressure or extended arms of government and bailing out the government and divestment process.