Nifty unlikely to sustain above 5300: Morgan Stanley Wealth

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August bought with it one of the worst series for markets worldwide, but luckily, it looks like this month is going to much better for equities. However, Gaurav Doshi of Morgan Stanley Private Wealth Management India says that he finds it difficult to predict how markets will behave this month.

"We have got too many global events that have panned out and that are going to pan out which will have a massive impact on how our market behaves" he said in an exclusive interview to CNBC-TV18. THe adds that tese events are going to keep our markets on its toes, and hence make it more difficult to predict a range. However, he believes that levels above 5200-5300 and below 4900 for this series do not look too sustainable.

Doshi also believes that the behavior of the dollar index will largely affect India. "If the dollar index moves above 76-77 sustainably, then I would make a stronger case for the Nifty to move above the 5200-5300 range and vice versa."

He further adds that the liquidity promised by the Fed with near zero interest rates will chase markets with growth. According to Doshi, emerging markets are going to look more and more constructive versus developed markets under current situations. "However, India is not the most favoured emerging market right now" he adds.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee.

Q: There has been some reconstruction after a dreadful August. Do you see this rally persisting through the month of September and beyond?

A: I think it is really going to be hard to put a level and predict how this market will behave this month. We have got too many global events that have panned out and that are going to pan out which will have a massive impact on how our market behaves. We are all looking at the US and the Obama job's package, but I think we have to rewind and focus on Europe because that is clearly where the problem remains. Off late, I have been getting some indicators that inter bank liquidity in Europe is not looking too good. So that seems to be a little bit of a concern area. More importantly, we also believe the G7 meeting this weekend could bring about a coordinated monetary easing that could emerge in Europe.

There are also internal events such as the RBI meet, which to me is going to keep our markets on its toes. So it is going to be hard to predict the range, but given the rally we have had, levels above 5200-5300 for this series do not look too sustainable and levels below 4900 also do not look that sustainable. But with global events playing out, it is anybody's guess.

But the only thing I would like to mention is that while we are pretty much certain that the global economies are looking gloomy, I think one thing is pretty evident is that the Fed has made it clear there will be ample liquidity in the system because of near zero interest rates for the next two years. We think that this liquidity is going to chase markets with growth. So we think emerging markets are going to look more and more constructive versus developed markets under current situations. However, India is not the most favoured emerging market right now. We had a good monsoon, we are down 20% YTD and we are trading at about 12-13 times earnings. You have government that is starting to mobilize itself on policy reforms and more so we are starting to see the fact that a lot of revised earnings growth have already been build into the system. So we see limited downside for India.

I would also say that for this series, it will be very important to see how the dollar index behaves because that is something that India could be positively co-related to, atleast for the near term. If you do see the dollar index move above 76-77 sustainably, then I would make a stronger case for the Nifty to move above the 5200-5300 range. But if you do not see the dollar index in this series break above 76-77 mark, then I think 5200-5300 for this series is probably where the cap will be.

Q: On that point you made about liquidity, what is it that you are hearing about money interest into this market? Is it just high cash levels that are getting corrected right now or are you hearing fresh money entering India specifically as a market?

A: No, we are not hearing of any big bang flows into India dedicated funds. But across all our desks, we are definitely seeing positive flows into emerging markets. India still is not getting a chunk of the flows. At our desk, we are seeing FIIs who have been net buyers, we are seeing domestics who have are occasionally coming in and turning net sellers. But one thing we can see for sure is an increase activity in cash based buying, delivery based buying and a simultaneous increase in protection buying on the Nifty.

Q: The space that is really bouncing back is infrastructure. Names like IVRCL , JP Associates are up some 15-25% over the last few days. Are you guys buying into that space?

A: I just think that it is too early to be buying into IVRCL, Nagarjuna and all these companies right now. Yes, there is some value buying happening, I will not deny that. We are actually seeing some very smart names in the market, but personally I am still a little skeptical to see how things unfold.

We also need to see what happens with this whole Land Acquisition Bill and what the real impact is going to be for certain companies. But all in all, it is a step in the right direction. Eventually we believe that infrastructure is one space that investors have to be constructive on. It is just that the stocks that you mentioned are not particularly stocks that I would be chasing.

We would be more be looking at infrastructure proxies such as equipment providers, infrastructure ancillary companies as safer bets under the current environment and only when we have a lot more visibility and clarity we will be go gung-ho on the real infrastructure developers. As of right now we just stick with the infra ancillaries.

Q: What do you do with cement because that is also becoming relatively strong over the last few sessions? Do you have a view on that?

A: We are neutral to constructive on cement. But looking at charts and general interaction with market participants, I personally that we will get better entry opportunities into the cement sector. So even though I do stay constructive on cement as a sector, I really can't put too many negatives or sorts.

I think we have talked about the over supply and all of that. I just don't think that from a fair price point of view, they look that appealing or technically on the charts these stocks look that great. That is the only reason why we would rather be looking at cement 15% lower than current levels from an entry point of view. But yes, we are definitely looking to add cement to our books, but not currently.

Q: There was a lot of action around the real estate names yesterday post the Land Acquisition Bill, specifically because of the kind of compensation that was being talked about. Have you guys collated a note on your takeaways from that Bill and how would you approach real estate stocks?

A: We have put together some initial thoughts and it is going to depend on which segment the real estate companies are operating, the size of land parcel that will be required, whether they are looking at townships, SEZs, or residential. So it is going to have different impact levels on multiple companies.

But broadly, with regards to real estate companies, we believe that a couple of companies that are basically are in low-end residential, or are cash positive like Oberoi , or an unique thematic real estate play like Phoenix Mills are the only bets to make,.

It doesn't matter whether this Land Acquisition Bill really has an impact or not, because a lot of these companies need to go through a severe restructuring and have to get rid of high inventory. We are not seeing sales materialize, we are not seeing rental occupancy pick up and we are not seeing commercial real estate see any traction. So those are the segments we would not want to touch, no matter what the impact of the Land Acquisition Bill.

 We stick with low-end residential, free cash positive balance sheets and unique plays in real estate. We do think that the risk reward is very interesting for really high risk investors, given we are the peak of interest rates cycles.

Q: What about ONGC ? How are you approaching the follow on and what is your recommendation there?

A: In ONGC's case, one thing we need to see is the pricing. We do not see too much downside from current levels, but do not expect the stock to be a spectacular performer this series. This FPO overhang is legitimate and will keep the stock suppressed, but given the buoyancy we have seen in other names like Oil India , Reliance Industries and the pullback we have seen there, we do thing that once this FPO overhang is done, ONGC may have some catching up to do.

As it stands right now, this FPO is not something that is exciting Indian investors or retailer. We are also finding it hard to see traction with overseas investors in this case. So I do feel that this FPO will go through, but it is definitely going to have an overhang on the stock.

Q: Will you buy into any of these three consumer related stories - Jubilant Foodworks , Titan or Bata ?

A: No. I think valuations do not support a buy argument at all. We do not think that this sort of outperformance is sustainable. It is just that the sheer nervousness in the market is making money herd into defensives and consumer names. There is no doubt that these companies and these stories have merit, but at the right price. So we do not think that these valuations will sustain too long.

However, I do believe that these are great stories and I would like to add at the right price, but that price is nowhere close to where they are right now. Definitely avoid all these three stocks right now.