Market will be range bound for now and much upside or downside cannot be expected, says Amit Dalal of Tata Investment Corporation in an interview to CNBC-TV18.
The market in the first half of July has shown an upward trend. The Nifty regained the psychological mark of 6000 on Friday, and the Sensex ended slightly above 20,000 mark. Presenting his outlook on the market, Amit Dalal of Tata Investment Corporation says that the current scenario is better than June but expects the market to be range-bound. He also sees some buying interest at lower end.
He still prefers IT and pharma stocks over others. Economic slowdown has affected cyclicals such as autos, infrastructure, capital goods etc and things will not change in the next quarter too, he told CNBC-TV18. "Banking remains under concern because of the stressed assets value", he adds.
Rupee will remain in the 60/USD levels going forward as gold imports have come down and trade deficit numbers are also not very bad, he says.
From 1-2 years perspective, he is positive on Infosys despite rising employee costs hitting margins next quarter and the negative impact of the US immigration bill. The risk of underperformance by the stock has lessened, he feels.
Below is the edited transcript of his interview to CNBC-TV18.
Q: These are good days for the market. At least the first part of July has been. But could we nudge above the upper end of this range? We are sitting above 6000. But where do you see us head from here?
A: I don’t think that this is a market which can blow out of the range which has been created now for almost six months. So, one should not expect substantially more up moves from the market. We have had a period of the last one month which gave strength at the base. You had extremely bad news in the beginning of June. But still the market did not give way to a large extent.
We touched a low of 18,000 odd and in the last week or 10 days we have had good news from companies. Infosys came up with better than expected numbers. Even we came up with some order in the hands of a company like Thermax which complained for one and a half years that they were not getting orders.
So, maybe there is some more confidence permeating; you are seeing midcaps which had been beaten down to rock bottom perhaps finding some kind of buying interest at the lower end. That, in itself, is just the kind of picture that the market is drawing right now.
I would not paint the picture on a bigger canvas and say that we are in for some kind of a huge rally. But, definitely, it is a better month than June.
Q: Which one would you pay more emphasis on; would it just be more focused possibly on what is happening to the rupee hence domestic macro economics? Or would it be due to events on the global front despite the fact that things have now eased off in the US?
A: Last time there was a huge concern that rupee would perhaps depreciate even further from 60 and almost everybody at 62-63 on the drawing board for estimates. I felt even then that that was not going to happen. Going ahead, the rupee will remain in this range for a long time because trade deficit numbers aren’t coming as bad, gold imports have come down.
There was this trend or I should say a change in allocation process which started in June in favour of the developed world with capital moving out in large numbers from the emerging markets. That is why we had that USD 7.5 billion of pull out in outflow in June when you totaled equity and debt outflow perhaps in July we will not see that kind of situation arise again.
That gives some comfort to our markets at the lower end as we don’t see that much stock flow coming in with regard to the rupee not depreciating. Whether, it gives you some comfort in our economy, no I don’t think so.
I think economic slowdown is substantial in the cyclicals whether they are autos, infrastructure, capital goods and that slowdown will reflect in the results too. I don’t think that in the next quarter, things are going to change. So, the large story remains the same IT, FMCG, pharma remains the leader. Banking remains under concern because of the stressed assets value.
Having said that, I would say, that the change in the value of the stressed assets that is the percentage increased stressed assets has come down substantially. There is a feeling that we maybe reaching a bottom in terms or the top in terms of the total value of stressed assets in the system.
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