SENSEX NIFTY
Dec 29, 2012, 05.02 PM IST | Source: CNBC-TV18

Mkt to start firm on '13 despite volatility risk: Dalal

Amit Dalal, ED, Tata Investment Corporation explains to CNBC-TV18 that the market will open 2013 on a very strong note backed by a return to the highs at the start of 2012 and close to 400 companies appreciating by over 40 percent.

Amit Dalal, ED, Tata Investment Corporation explains to CNBC-TV18 that the market will open 2013 on a very strong note backed by a return to the highs at the start of 2012 and close to 400 companies appreciating by over-40 percent. Though the risk of volatility from the turn of global events persists, Dalal emphasises that the trend in the market is highly positive

Sudarshan Sukhani of s2analytics.com mentioned earlier that he would wait for the afternoon session to determine whether investors can trade or not. He adds that he would not recommend an intraday trade.

"It is not working out very well. The Nifty has not hovered above 5900 which could have allowed taking long positions and carrying them home. But, I don't think that's a very good idea now. It is best to stay away from the Nifty and the Bank Nifty and focus on individual stocks. Investors will just have to wait for signs of the market breaking out of this trading range."

Below is an edited transcript of Amit Dalal's anlysis on
CNBC-TV18

Q: What is your bias on? Are you constructive on the markets as we enter 2013? What are the domestic triggers that you would watch out for?

A: The trigger is going to definitely be positive not only because of the moves made by the market up from 5200 in the last few months but also because investors have forgotten to look for winners in a market that has remained  stagnant for two years.

The market, after going down in 2011 on disruption that included scams and protests, is back to perhaps a 7 or 10-percent appreciation levels that existed on the Sensex at the beginning of calendar year 2011.

But in the interim period, close to 400 companies have offered a more-than 40-percent appreciation. So with such a background and technical emergence, the market in 2013 will start on very strong note. Though there may be volatility on issues such as the fiscal cliff or the eurozone, the trend in the market will be positive.

Q: Will the market be able to post an encore of the performance recorded in 2012 in 2013?

A: No. The market came down in the beginning of January 2012 and corrected in December and November. So the market started the year on a very low base and moved up over the course of the year. But one cannot expect the same percentage of returns and FII flows definitely remain the biggest risk to the market. If FII flows were to simmer down or even perhaps go negative, it would invite tremendous volatility into the market where domestic institutional participation remains practically underdeveloped.

So that risk will always remain. But in terms of fundamentals, the reach that this market has is not something that can be disputed right now.

Q: What do you think the base of this market is right now? If there is volatility and negative news from across the globe, to what extent could this market absorb the impact?

A: Let us treat that in technical and fundamental perspectives. In terms of fundamentals, I think the case for the market today that is helping it move is the recovery from the trough due to economic factors and the government’s initiatives towards growth.

The slowdown across the economy persists and that has placed a drag on the payment cycles. So that is the part of the trough that this market is aiming that the economy moves out of, which is expected to occur in the first quarter of next year. And if that happens I do not think the market will go down much, but 5400 is always possible in any period of correction.

Q: Which sectors will lead the Nifty higher from current levels?

A: Barring several estimates, I think the market will be led by interest rate sensitives. So the banking sector will continue to do well thanks to private-sector banks. Though most public sector banks may still be laggards in the movement, private sector banks and a few of the large PSU banks may constitute a large part of the move in the Index along with reorganisation of assets in infrastructure companies.

There is a possibility that some of the large assets that have been built up in the books of many companies may find their way into a divestment structure which would help these companies perform. There is a chance that the government companies which have stopped their capex cycle will start moving in on motivation given by the government and that should help many of the EPC (engineering procurement and construction) companies and aid other companies to increase their order books. If that does not happen, I think there may be a drag-on in the market for sometime. But on support of those kinds of moves, the market could move up further.

Q: Bharti has been a laggard on the Nifty stock all through this year has been. What is your outlook on the telecom sector? Is that a sector you would venture into?

A: I think there is a case to be made for telecom stocks. Look at Idea which is perhaps at a new two- or three-year high. The only reason Bharti is still where it is, is because of its investments in Africa, limited investors' ability to understand the general nature of the politico-economic scenario in the continent and the debt it carries on its books which weighs upon the valuation.

But the biggest case to be made today for telecom today is the fact that the sector remains unaffected by the widespread inflation and telecom rates have been at rock-bottom levels for a long time. With the market yet to exercise it capacity for the absorption of hikes in telecom prices once there is little bit of consolidation in the sector, there is a very big upside in the wings for these companies.

Q: Do you think the Indian markets could face a lot of jitters in 2013  because of the fiscal cliff situation?

A: I think the fiscal cliff is something the US government will have to find a solution because it has no choice. So when markets can sense that some sort of resolution will be reached in the end, there will not be any major correction, even in the US market.

However, the bigger risk is in Europe. Though the halo of Draghi corrected the situation in the short-term this year, but for next year, the ECB is unable to implement the necessary ground level changes in Spain, Greece or France. So investors may not the same comfort zone in Europe that is present currently which is overriding a lot of confidence in the markets. So equity markets in 2013 and 2014 face the biggest risk.

Q: Oil and gas stocks have performed quite well. What is your opinion with regards to the staggered increase in diesel prices that the government is contemplating?

A: If the increase in diesel prices comes through, it is worth 200 points on the Nifty. If government is able to implement the policy of a staggered increase in diesel prices, the impact would be considerable and there is no argument in oil marketing companies being the biggest beneficiaries. However in the case of Reliance or any other refinery, it is a different ball game altogether and Reliance maybe up because of investment buying taking place in the stock. I do not think it is related to the diesel prices.

Q: What is the sense that you get from FIIs going ahead? Do you expect to see an increase in FII commitment?

A: FII inflows continue to surprise the market. My biggest concern is the fact that FIIs own substantial chunks of Indian companies and according to a report in many large companies FIIs own 20-20 percent. There is an increased risk with markets needing FII flows daily to survive a certain level before domestic flows come in.

Another aspect that poses a risk is that when there was a big technical negative for the last two months when the market moved from 5200-5600, the rupee strengthened almost Rs 2.5-3. From 5600 to current levels for almost a period of two months, the rupee has remained at 55 and there has been no real strengthening of the rupee.

I do not know to what extent the foreigners have hedged themselves in the futures market and back-to-back in the currency market.

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