Nifty seen in 4500-5200 range, Budget to be driver: UR Bhat

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The market was waiting patiently for positive news and it lapped up RBI's decision to cut cash reserve ratio (CRR) by smart gains. On Tuesday, the Sensex pulled on almost 290 points rally. However, experts feel that the momentum of the rally is unlikely to last long and is staring at a bad third quarter earnings.

In an interview to CNBC-TV18, UR Bhat, MD, Dalton Capital Advisors said that the Budget is going to be the key driver for the market in the near-term. Noting that there is no positive newsflow till Budget, Bhat is expecting the Nifty to top put at 5200 in the near-term.

According to him, the Nifty is likely to be in the board range of 4500-5200.

Bhat warns that volatility in Europe may lead to profit booking. "There may not be much of positive newsflow from now on after the CRR cut and the only thing we have to look at is newsflow from Europe and as of now it doesn't look like that is going to be a positive factor," he adds.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.

Q: 5000-5100 that congestion is crossed, so how much could the Nifty put on in this rally?

A: Today is the day when it will probably kiss 5200 possibly and I think that is likely the reaction to the CRR cut yesterday which was unexpected. Plus we had couple of billion dollars come into equity markets through FIIs month-to-date and year-to-date, so all this is a reaction to that.

But the fact of the matter is despite the CRR cut, we really don't have anything that has dramatically changed on the ground. We should be expecting some more earnings downgrades, if the initial results are any indication. Also there is probably not going to be much newsflow, positive or negative, as far as India is concerned for the next one and half months because only after election we will see Budget, till then everything is on hold.

So therefore there may not be much of positive newsflow from now on after the CRR cut and the only thing we have to look at is newsflow from Europe and as of now it doesn't look like that is going to be a positive factor. The most important factor in January has been that there has been liquidity inflow into India largely because of the funding of European banks to the extent of two-thirds of trillion dollars and so that has had some effect on India's flows.

Baring that, we will have to see how the risk appetite goes because FIIs who came in at the end of December or early January have made in dollar terms around 17%. So therefore there is possibility that if the uncertainty in Europe increases, there can be some sort of profit booking. Taking all this into consideration, 5200 is as far as it will go for the present.

Q: So would you call for a turn in the market's move from here or do you think it is possible that momentum takes it a bit higher before we see any meaningful correction?

A: Momentum can take it further if FII flows continue and that is contingent on how risk appetite shapes up based on events in Europe. As of now, it looks like as if there is stalemate as far as the private creditors to Greece is concerned and that needs to be solved in a reasonable timeframe. Otherwise, risk appetite would probably turn back to negative territory, which could push some sort of profit booking as far as Indian market is concerned. Especially in dollar terms, people have made around 17% in three weeks time which is enough for someone to book profits. So we need to be cautious on that.

Q: Has it been a narrow rally in terms of how many people go to milk this 10% move on the index because it has been dotted with a lot of cynicism from start of January to now?

A: Absolutely. Very few participants pumped in this USD 2 billion because a quite a lot of people were skeptical about any uptick in the market in January largely based on ground realities about newsflow, policy action, fiscal deficit etc.

One of the important factor was if you take 2011, the underperformance of the Indian market in dollar terms vis-à-vis Dow or something of the order of 40%. Now about 16-17% of that has been bridged in a very short span. So therefore a 40% underperformance vis-à-vis the US market is something that would have generated some sort of interest by way of a swing trade and I suspect that is what has happened in the last three weeks.

Read on the find out what is driving the capital goods space..