Nifty may see 5600; mkt set for new high in 12-18mth: Citi

Q: Do you think it is possible this quarter?

A: It is possible. It's not our base case forecast but there are so many statistical adjustments that go into it. So whether its 4.9 or 5%, it is hard to say but Rohini, our economist thinks that there is some risk of that. If that were to happen then there will be that big feeling that are we back to the pre 2003 sort of period, which is a real risk we have to stay away from.

Now if we cannot skirt it, there will be some serious pressure. We used to be well-known for growth; we are losing that battle as well and then there will be some pressure in terms of reviving growth.

Q: What has client positioning been like. Would you say that in this rally from 4,900 to 5,400 people have merely covered up their shorts or have you seen some serious long positions?

A: I think on a lot of short coverings took place in January, so that was at least a good smart thing to do for a lot of investors. I met a whole bunch in early February and I remember telling me that they are covered; especially financial people were very short so they had covered those positions which they were thankful for.

Now I get the sense that people are perhaps at their benchmark, maybe even slightly underweight but nobody is celebrating this rally, nobody is saying I am 10% vis-à-vis my benchmark would be 7% or something of that. I think they will still chase. I do not think anybody is in a preemptive mood yet. Dollar INR is the place where I think things could get more interesting if we were to break these recent lows like 5,490 or something.

I think it is a scope of running another 4-5% relatively quickly because some of those hedged by FIIs could get lifted as well as some exporters who held back will feel the need to get back in one year forward points or near their highs. Those could also provide an extra impetus for people to hedge. So there are a few things lining up.

It just needs a small catalyst. It really needs somebody in the government to read charts. I say that jokingly, but it is really at that cusp where one or two meaningful steps would get a stampede. I think it would get people worried because they are underexposed to the Indian market and would cause almost a negative feeling, people needing to chase just to stay afloat. It is a possibility that is setting up and the market is not positioned for that right now.

Q: If that catalyst were not to present itself in the next 3 or 4 weeks, do you think the weight of fundamentals and poor macros can drag us back to where we came from?

A: I think it can push us back. I don't think it will take us back to 4,800.

Q: Is that safe for the year?

A: I think we have rejected that. In a global context, for S&P 500 to be at 1,420 with all the bad news we still hear about real estate and the banks in US, the fact that we are still only 8% from all time highs is remarkable. People know that Apple is wherever it is but people also may not have realized the likes of Amazon are at multiples of where they were before the bubble. So there is some sense of value; we have, perhaps, got too pessimistic and that if Greece were to exit, it’s not the end of the world and I think that realization has set in.

So, I think we have rejected the 4,800. We could get knocked back to 5,100 where we spent a lot of time in that range but I think because we still have hopes of Reserve Bank of India (RBI) policy action; we will also have hopes of the new finance minister trying to engineer one-two helpful things. Our strategist Aditya Narain has re-accelerated earnings per share, so for the next fiscal year, he is looking for 13% or so up from 11%. So that cycle, hopefully, is kicking in. I think that will keep some sort of a floor in the market. We could get knocked back a bit but I do not think we will go back and revisit the lows of last year.