After the midcap collapse of last week, the first signs of concerns about the Indian market has started to creep in. UR Bhat, MD of Dalton Capital Advisors said there has been strong FII flows in the month of January itself and the market strength is now largely dependent on these inflows.
After the midcap collapse of last week, the first signs of concerns about the Indian market has started to creep in. UR Bhat, MD of Dalton Capital Advisors said there has been strong FII flows in the month of January itself and the market strength is now largely dependent on these inflows. According to him, this might keep the Nifty afloat around 6000-6100 levels. Therefore, he is cautious on markets at current levels as valuations are not comfortable.
Bhat explained that although, there is an element of stability around the global markets like Europe, domestic institutions continue to be big sellers. He also believes that the market has a limited upside and may find resistance around 6100 to 6150. Besides, the midcap and small cap correction remains a concern, he noted.
At the moment, the market is focusing on issues like the debt ceiling, budget and the state polls and Bhat expects the government to offer some discounts on stake sales in public sector organisations. He also believes the divestment agenda of the government will not be a failure.
As far as the Reserve Bank of India’s monetary policy is concerned, Bhat is factoring in a 25 to 50 basis points rate cut for tomorrow. He also thinks that growth in the FMCG space may be much slower in 2013 when compared to the previous year. But, he is optimistic about the auto sector and feels it will give good returns ahead.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Any signs of an imminent correction after the midcap collapse of last week or do you think the market is on course to head higher into the Union Budget?
A: A correction is something that we should bargain for, especially after the problems we saw in midcaps and smallcaps over the last few days. About USD 3 billion plus has already come in from FIIs in January and it continues. There would probably be some amount of uptake in the broader market. The big call is about - how long will this continue?
There is some element of stability in Europe with most of the interest rates coming to a very moderate level. Therefore, the worries that we had of Europe breaking up and a hard landing in China or even fiscal cliff problem in US have all receded. That is the reason behind the risk on rally.
Even in India, incremental positive news about diesel deregulation, at least for the bulk users and a lot of new decisions that are probably imminent can influence the market. The market has really been re-rated, not so much on account of earnings surprises on the positive side but largely because of multiple re-ratings. We need to be cautious at these levels. The multiples are not really very attractive.
So it is only further FII flows, strong flows that can keep the market afloat and towards 6000-6100 level. But, if that stops anytime soon, then we need to be worried. The first signs of that is the midcap and the smallcap correcting over the last 10 days.
Q: How much more would you give the market from here? Is it enough done for the rally or is there more to go?
A: The fact is that even USD 3 billion plus that has come over the last three weeks has really not taken the market dramatically higher. Therefore, incremental money, larger amounts of money are required to even sustain and marginally improve the market.
But, the fact is that the domestic investors continue to be big sellers. Therefore, incrementally much larger doses of FII inflows are required to sustain the markets. That is the cause for worry.
Q: What did you attribute to that huge midcap carnage which happened last week? Any sense of what went on and whether institutional investors sold? Do you expect to see continued selling on many of these non-index names?
A: There are certainly some corporate governance issues that keep coughing up on the mid and smallcap space. That has sort of shaken the confidence of investors investing in these stocks. Also, there was some negative performance vis-à-vis expectation from some of these stocks but quite largely these are all corporate governance issues.
Pledging of shares by promoters which come to the market occasionally also led to the stocks getting hammered. These are the issues that need to be on the centre stage. That is what is bothering most large investors. Each of the stock is championed by one of the large investor. When a large investor loses confidence and gets out then there is really a carnage in the stocks.
READ MORE ON CNBC-TV18, Bazaar, UR Bhat, Dalton Capital Advisors, FII flows, debt ceiling, budget, Union Budget
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