Rahul Shah, Head-PCG, MF Global, advices the investors to keep off for now. "Looking at the market as to what happened yesterday and today; the single most factor which is determining the directions of market is oil and markets were up with huge volumes yesterday by more than 700 points and in the first ten minutes of the trading session today we have lost most of them." So the thing is that unless oil corrects and stabilises we are going to find it difficult to trade the markets, Shah added.

Ramachandran Krishanan, Head-Investment & Product Office at Barclays Wealth India, feels that it is very clear that the oil price is something which can dramatically change the pessimism in the market and if the oil prices are going to be moderate that will make a sea-change to the current very somber scenario that one is seeing.

He said that it is not know on how oil is going to behave over the next few months but that’s the most serious factor that is hampering the normal playing out of the circular uptrend that we have been seeing for many years now. 

Excerpts from CNBC-TV18’s exclusive interview with Rahul Shah & Ramchandran Krishanan:

Q: What are you advising people? This seems to be a bad market for traders and for investors. Are you asking people to keep off now?

Shah: That’s the best thing to do because looking at the market as to what happened yesterday and today; the single most factor which is determining the directions of market is oil and markets were up with huge volumes yesterday by more than 700 points and in the first ten minutes of the trading session today we have lost most of them. So the thing is that unless oil corrects and stabilises we are going to find it difficult to trade the markets.  

Q: If investors did want to play in this market, the ones who just wanted to enter and start cherry picking, what would you advice them currently, to go for something like a capital guarantee and get into a systematic investment plan how should new investors currently enter the market after such a steep fall?

Krishanan: We are still bullish on the equity markets for the longer term. The important thing to convey to that investor is that one has to take a 15-18 month perspective, so anything less than that would be a loss making proposition to enter into equities. So given the market level, the best way to play equities is to take a play on the entire India growth story, so typically it would be a flexi cap  kind of a portfolio and diversified across sectors, that kind of a portfolio rather than focused on any particular segment because the markets are at a very attractive level if you take a longer term perspective. So that’s the approach one would suggest for a perspective fund.

Q: No one can time the bottom but looking at only the macro economic parameters and you have been a long time watcher of all that. Do you sense a fairly serious capitulation even from current levels?

Krishanan: One cannot rule out further fall from here or even steep fall for few days or over a period of time and the reason for that is that the market is unfortunately driven to a great extent by liquidity flows. Therefore, if the liquidity flow change or they disappear overnight then it can cause a bit of chaos in the market. But there is a need to distinguish a bit in the financial market and the real economy. If one looks at the real economy, there is nothing that is seriously wrong at this point of time. There are no news of downward revisions in the earnings growth of companies so therefore there are no alarm bells ringing as far as the real economy is concerned but the financial markets are definitely in a bit of a chaos. So there needs to be a distinction between the two and if one draws that distinction then one will find much more comfort from the fact that economy is still growing at a fairly decent clip.   

Q: What kind of asset class are you advising your clients to go into, would you advice them to get into money market fund or something just bide their time at all?

Shah: A lot of our clients have parked our money in liquid funds and stuff like that. Initially I was answering your question about the traders, however about the investors; the markets have corrected about 50% of the gains in last 3-4 months, so not only the front line stocks are looking attractive, even midcap stocks are looking out there pretty much in 3-4 PEs. So, if you have a time horizon and you are ready to wait, this is a very attractive opportunity and we are advising our clients to gradually move out of liquid stocks and enter selectively into front line and midcap stocks.

So if you believe equity as an asset class and if you have patience then it is a good time to pick up stocks.

Q: If you have the permission and the compliance why don’t you talk stocks?

Shah: There are few capital goods stocks like L&T and BHEL which have corrected well; they have visibility of the growth and the revenues and are looking very attractive at the current levels. Also, selectively if one looks at stocks like Infosys where we believe the results could be much better than expectations.

We are asking our clients to selectively pickup those stocks also one of the frontline stock that we been actively asking our clients is Great Eastern Shipping Company where it has come close to the book value; trading much at a discount to the net asset value and also they have got into offshoring as a business.

So there are selectively few stocks where we are asking our clients to get into. There are baskets of midcap stocks across various sectors which are recommending. But the mandate is clear that the time horizon could be little longer because market may guide it very violently on day to day basis.

Q: If you could give us your house out look on where you see the Sensex bottoming out and what are your targets for year end and when do you see all these macro-economic headwinds, whether it is from the credit crisis front, our markets, inflation, when do you see all these macro-economic headwinds receding and the up move resuming?

Also take your point on the macro-economy but some sector advice?

Krishanan: The joker in the pack is very clearly the oil price because if there is something which can dramatically change the pessimism and if the oil prices are going to be moderate that will make a sea-change to the current very somber scenario that we are seeing. Nobody knows how oil is going to behave over the next few months but that’s the most serious factor that is hampering the normal playing out of the circular uptrend that we have been seeing for many years now. So that is something which is not predictable and it’s also very difficult to then predict where the bottoming out can happen because it all depends upon how much is the risk aversion at this point of time and when people will start opening their purses and investing in the markets, that’s anybody’s guess but the  bottoming out will happen sooner than later.

Q: Then what sectors will you pick. Will it be realty, banking the one that got bashed up?

Krishanan: One cannot go by just the valuations or how much a particular sector has taken a beating because one will also have to see what is the kind of visibility in earnings and from that viewpoint capital goods sector certainly looks very attractive for the simple reason that if there is any sector which has got tremendous visibility it is definitely capital goods. People are going ahead with their projects and one can fairly predict the kind of income flows for these companies.