SENSEX NIFTY
Jan 09, 2013, 10.47 PM IST | Source: CNBC-TV18

Nifty ends below 6000: Will it slip further?

In an interview to CNBC-TV18, Dilip Bhat, joint managing director of Prabhudas Lilladher says he is not surprised by the profit booking. "The market has gone up on the back of liquidity. So, some fatigue factor must have played its role," he explains.

It was a flat session for the Indian market, but a late dip dragged the Nifty below the 6,000-mark again. The NSE benchmark fell 30 points and ended at 5,971. The Sensex lost 76 points and closed at 19,666.

In an interview to CNBC-TV18, Dilip Bhat, joint managing director of Prabhudas Lilladher says he is not surprised by the profit booking. "The market has gone up on the back of liquidity. So, some fatigue factor must have played its role," he explains.

The fundamental concerns, Bhat says, still remain primary at the moment. "But, by and large, for the time being, one still has to play the ball with liquidity, which is massive and is driving the market up," he adds.

According to him, cement still continues to be one of the sweetest spots because the EBITDA to free cash conversion is one of the highest in cement. "I think one should look for buying cements at dips," he asserts.

In the longer run, he says, all three oil marketing companies, particularly Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Limited (BPCL) look very interesting.

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Below is the edited transcript of his interview on CNBC-TV18.

Q: What is your view on the Nifty now?

A: The profit booking should not be very surprising. The market has gone up on the back of liquidity. So, some fatigue factor must have played its role. Will the liquidity be just enough for the market to remain where it is? That is a concern.

The fundamental concerns still remain primary at the moment. Even if there are some green shoots in the economy, it will be quite sometime, maybe couple of quarters before the economy really starts showing any upward move, even though it may have bottomed out.

But, by and large, for the time being, one still has to play the ball with liquidity, which is massive and is driving the market up.

Q: Many of the cement stocks have started to fall. Perhaps diesel will be sold to them at the market rate. They may be revised as well for bulk buyers. What is your opinion?

A: If this news really comes out to be true, I think the cost for cement will definitely go up. But I think the cement producers have enough leverage in terms of pricing power. In Delhi, we have already seen some price increase, about Rs 10-15 today.

I think in this particular season, particularly this March and June quarter, the overall cement prices should move up. That should more than offset any of the cost increase that possibly could happen.

Cement still continues to be one of the sweetest spots because the EBITDA to free cash conversion is one of the highest in cement. Apart from that, you have the IT where that kind of conversion takes place. So, I think one should look for buying cements at dips.

Q: If in case this bulk buying does come through with regards to diesel at market rates, what do you think is going to happen to the fiscal deficit scenario? Do you think that’s it is going to possibly reduce a lot of the concerns coming in on that front and hence a long-term positive?

A: I think it may give the inflation a little push up, some here and some there. But, by and large, I think the bigger concern still remains the fiscal deficit. That can really push up the inflation much bigger way, if not controlled. So, I think reduction of fiscal deficit by whatever means should be viewed very positively. I think it would help India probably stay off some kind of a derating.

I think fiscal deficit reduction probably will be a single most important point for all the investors, more so for the foreign institutional investors (FIIs). So, I think on a broader basis this would certainly be very positive.

Q: Any reaction with regards to oil marketing companies (OMCs)? How exactly the financials could play out if in case this does come through?

A: I think it will give them some respite. More importantly, it will give them some amount of cash in their books. I think slightly in the longer run as government moves towards the cash transfer schemes directly into the hands of the population, it will really help the OMCs in the longer run and it will improve their cash flows quite a bit.

I think there is some sense of direction which we are getting finally for the OMCs. So, in the longer run, all three companies, particularly Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Limited (BPCL) look very interesting.

Q: Would you take cue with regards to what we saw from railway price hikes today as well as the talk on diesel as to 2013 might be more aggressive in terms of reforms, hence better for the equity markets in the long run?

A: The pace of reforms is expected to get a little more accelerated. Far from rhetorics, which probably have played up till now, I think some of these are actual actions. They will play out in terms of the reforms to curb the fiscal deficit and to really kick-start the economy, also to expect a good amount of the fund flow, not just FIIs, but even the foreign direct investments (FDIs) and other kind of investments.

I think, overall, the direction is definitely very good. But my only worry is that given the weak and the coalition nature of the government, I think it would be a little optimistic to expect that that will really play out in the manner in which the people are expecting. So, there could be some disappointment in store ultimately for this. Probably that may act as a stumbling block for the market to go up and sustain at those levels.

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