'Mkt to trade sideways in short term before moving up'

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The National Stock Exchange's 50-share Nifty on Friday closed within striking distance of 5,000 bouncing back from 4,600 levels that it touched recently. How are things now looking for the stock market and how should you position yourself now? Will the market rally continue to power on or is a correction overdue? Dipan Mehta, member of the BSE and NSE answers.

Here is a verbatim transcript of Dipan Mehta's exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Does it seem like this 5,000 mark will be sustained in the next couple of weeks because there has been so much talk about money?

A: I think we have had lower bottom in place or going by that logic we should have a higher bottom as well, which means that market should trade beyond the earlier highs of about 5,170 or so. But that may take a few more days maybe two-three weeks or so considering that the news flow would remain light over the next few trading sessions and it does appear that even the rally, which was there in the overseas market that is also losing a bit a steam at this point of time.

I think for the next immediate short term, next two-three weeks or so, you could look at sideways movement and eventually a breakout on the upside. Hopefully there will be some positive triggers in the form of global news flow and these days a lot of action happening locally as well with the government taking small steps towards reforms. We saw the gas price increase and thereafter we also saw some further progress on the disinvestment side.

That could be an interesting trend if the government would come out with more such reforms or pragmatic steps, which end of the day are positive for the public sector undertaking (PSU) stocks or for large industries and a lot of them have been taken place.

In the sugar industry, we did see recently and now these two-three announcements have come. So I am quite hopeful at this point of time.

Q: The one that was subdued on Friday was Mahindra Satyam in part because of that big block deal. How is this stock looking at this price though? At Rs 109 is it fairly valued, overvalued?

A: I still do not have the numbers so it is difficult to take call at this point of time. As I have said earlier as well, one is better off buying Tech Mahindra than Mahindra from an investment, long-term point of view.

Eventually both companies will get amalgamated and my sense is that shareholders of Tech Mahindra will get slightly better than shareholders of Mahindra Satyam. So a bit difficult to give a call on the stock price at this point of time.

Q: Did you have a chance to study the impacts of the Headend in the Sky (HITS) policy on some of the companies?

A: Not really. These are again steps in the right direction and as I was saying earlier that we are seeing a lot of reform measures, slight bit of opening up, relaxation of rules here and there which does tend to benefit the private sector and specific industries and we are seeing that the benefit of majority government and the recent wins that the government, the Congress party has had in this state elections finally getting translate into some action from the government.

Whatever announcements have come broadly have been positive but I think that these are more of a long-term process and whatever these policies are will make an impact more six to 12 months down the line. But stocks are running up even just on announcement.

Q: What about some of the auto stocks? They have been lying low for a while but on Friday they were strengthening: Hero Honda, Maruti?

A: I think they are moving more or less in line with the market and the October numbers were pretty decent for most of these companies which is why we are seeing some kind of a renew interest. By and large it was not the best performing industry during the September quarter numbers and therefore I think that investors maybe trying to become slightly more overweight within the sector and we are seeing buying interest coming back. Also these stocks have corrected over the past two-three weeks or so and maybe they have reached reasonably attractive levels at this point of time which is why we are seeing these stock prices go up.

Q: Where you stand on Educomp. Are you a believer in the new agenda for them or not?

A: Not really. I think that whatever steps or strategies the company is pursuing, I think that the return on equity (RoE), return on capital employed (RoCe) will come down going forward and that will impact the price earning multiple which is still quite reasonably high levels. So my sense is that over a period of time one should try and be underweight within the company. No doubt it's in an excellent sector but competition was also coming in thick and fast and just that to grow any further a lot of capital, the required to be invested and that will mean that the capital efficiency in the capital utilisation ratios will deteriorate and that's going to have a negative impact on the PE multiples. So my sense is that one should remain slightly underweight maybe these are good levels to even exit the stock at least partially.

Q: What is the fair shot this market has going into the end of this year by way of levels? What would you not be surprised to see the Nifty trading at?

A: I guess one more high beyond the 5,200 certainly is a likelihood, which would mean that it is possible that over the next two months or so you could see the Nifty at 5,400 but then I think that at some point of time you should be expecting a steep correction. The market would have traded above its 200-day moving average for a long period of time and even the gap between the present levels and the 200- day moving average would have expanded as Nifty makes another new high. That is always a sign that one should get quite cautious.

Even in the best of the bull markets, every 12-18 months or so the market does get a jolt and it does kind of correct towards its 200 day moving average so that need to be kept in mind. But for the time being, the strength of the liquidity flows and the reforms are keeping the sentiment on the positive.

Even at this point of time, we are not seeing exceptionally high retail participation and the open interest in the futures market also is well within control. The cost of carry is negligible at this point of time and not many retail inventors have got into the market big time so my sense is that when that event actually takes place, the trend actually starts occurring that is the time you may see a kind of a blow our phase and maybe a quick 4-5% move in a matter of few trading sessions so that is what I am looking out for and expecting over the next few weeks for this year.

Q: What do you reckon we will see next week? This one has been a bit lower if that in terms of volatility?

A: I guess next week would be typically the same; less volatility is expected as well and maybe you could have some more sideways movement over the next four-five trading sessions and the week thereafter is the triple witching week and there you could see gain volatility pickup. But by and large lower volumes, lesser participation and more sideways movement is what the current assessment.