Mkt not to fall below 13500 level: Envision Cap

Excerpts from CNBC-TV18's exclusive interview with Nilesh Shah:

Q: Do you think we have a small rally on our hands and if yes how durable could it be?

A: The markets are oversold in the short-term and we have seen this market weakening after it staged that brilliant rally from about 12,800 to about 15,500 and post that, this market has shed about 1,000-500 points on the Sensex. We have seen a good 10% correction from the recent highs in the broader markets and in the intervening period nothing has deteriorated significantly.

We are probably not at the bottom but we are probably close to the lower end of the trading range in which we believe this market to be. So broadly in a worst case situation, we see no reason for this market to trade below 13,000-13,500 unless one has something more catastrophic or anything which is significantly negative or something which is not been known by the market. So the stage is set for a small rally in the market.

Q: Will we get once again around 15,000-15,500, where we went or do you think this market macros have changed enough for us to journey beyond that? 

A: At this stage it will be good enough to say that we remain in this trading range of maybe 13,000 on the lower side and maybe 15,500-16,000 on the upper side. There have been some important early indicators of the macros getting a little better - whether it's in terms of moderation of crude price, moderation of inflation and some amount of demand destruction happening globally. So a combination of all that will definitely have some amount of an impact on the macros.  

But that it is probably early to take a call - that is the worst over for macros or not and in addition to that whatever we have seen deterioration at the macro level that impact we will continue to see in the Q2 earnings numbers in October. So it's quite possible that we might have some kind of a short-term rally but the markets will still continue to be in a good consolidation range for the next two-three months.  

Q: Are people getting a little nervous about the transfer of the gas assets to the affiliates and do investors believe that they don't have enough clarity there? 

A: Yes, that explains why the stock has been a little weak off late but it has been amongst the best performing stocks in this entire bull run and it has done significantly well. I think stocks that tend to outperform significantly, do tend to shed some of that outperformance and that is also what is happening. So fundamentally things are probably not as clear as what the markets desire it to be.  

Second, are concerns on refining margins because globally refining margins are softening and therefore that would have an impact on companies. But apart from all of this, there is some amount of the technical overhang in the stock in terms of its outperformance and that is probably a combination of all these things, which is contributing to some amount of weakness into the stock. 

Q: Would you back interest rate sensitive sectors for the near-term or would you be cagey? 

A: No, if in the short-term, one believes that there is a trading rally, the space that can probably outperform is the rate sensitive and within that, for traders it might make sense to look at the entire banking pack. There is enough breadth in the sector with good volumes and significantly oversold. So in the short-term, rate sensitives might look good and within that the banks probably have good potential to outperform. 

Q: For September, given that there are no major events that are pitted over the next four weeks. What kind of a broad trading range would you expect? 

A: The trading range would be between 13,000 on the lower side and 16,000 on the higher side. The buyers would be more towards 15,500-16,000 levels given the fact that the markets have corrected and we are reasonably close to our recent lows that we have made. So on the upper side, about 15,500-16,000 should be a good level for the next four-six weeks and till the earning season unfolds.