Nifty may not test previous highs in 2012: Citrus Advisors

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The recent rally in the market has fueled expectations of new highs. However, Sanjay Sinha, founder of Citrus Advisors says, the Nifty may not test previous highs in 2012. "I think the rally will happen in the first half of 2012. It will not be a one way rally. There will of course be some intermittent corrections. But I think we shouldn't be testing the previous highs," he adds.

According to him, the local sentiment has been quite skeptical about the rally from the very beginning. "We might actually rally quite substantially in the first half of 2012 without actually seeing the domestic retail participation," he adds.

Also read: Nifty is in a bull market, must cross 6300, says Sudarshan Sukhani

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: Do you think we have embarked on a bigger bull trend?

A: I think it is not quite likely that we shall be testing the previous highs in 2012. Intermittent corrections will be purely arising out of temptations to take some profits off the table.

I think on a broader basis, given the fact that the view on the street is almost unipollar that the rally will happen in the second half of 2012. I think going by the past experience it's an extremely risky position to be in.

I think the rally will happen in the first half of 2012. It will not be a one way rally. There will of course be some intermittent corrections. But I think we shouldn't be testing the previous highs.

Q: What explains the more than Rs 10,000 crore withdrawals by the domestic guys? What's feeding that? Is it redemption pressure that's building because of the markets moving this much in this shorter time or are they just cautious?

A: I think it is purely a reflection of the local sentiment. The local sentiment has been quite skeptical about the rally from the very beginning. The fact that the rally has been very steep, in a short span of about a month or so, we rallied by 10%, that has made the domestic investors even more fearful. Therefore, they are trying to lock in their gains.

I think it's going to be a fairly lose-lose situation for the retail investors in India. They will not participate in the rally because skepticism is very deep rooted, also because of the fact that the rally has been very steep.

We might actually rally quite substantially in the first half of 2012 without actually seeing the domestic retail participation. Once we come to a fairly elevated level of the market, the conviction will come. That is when they will come to the market. In the second half, if the market does not actually replicate the performance of the first half, which is also quite likely, there will be disappointments yet again.

Q: Do you think it might play out like the last rally. Post 2008 crash, we saw fairly big V-shaped pull back, but retail actually sat out of that rally and eventually prices fell back to very low levels once again in 2011. Do you think it could be a situation like that or do you think this time around we will actually take out old highs and form something slightly more durable?

A: When we went to the lows of 2011, it was more out of the event risk that came. On that, there would be two subsets-the global factors and the local factors.

We absolutely have no control to what is going to be happening globally. All we can say is that given this messy situation that Europe has been for most parts of the last six months, the fact that we have held on to the market levels would probably set the base as far as the market is concerned.

I think what is more important for the market now is how we play out the local factors. Here I would say that after a span of about probably five or six years, it is the government which is going to matter much more to the market than anybody else.

The first leg of the rally or the sustenance of the rally in the second half of 2012 and beyond would very much depend on whether the government does not end up mismanaging the policy, what they have done in 2010 and 2011. If that doesn't happen, I think we are set on course for a more prolonged bull run in India.