No shock if mkt corrects 10% from here: Nine Rivers Cap

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Looks like the smooth sailing days of the market are over, and volatility will kick in as newsflow on elections results and Budget reforms emerge, says Sangeeta Purushottam, managing director of Nine Rivers Capital. "I would not expect the market to run away in this period; it's going to be very event driven," she said.

Since a large part of this rally was liquidity driven, Purshottam says that some correction was overdue. "A correction of 10% from current levels is fairly normal," she added.

With that view, Purshottam says that investors will now look at booking profits in some high beta stocks and will head back to defensives because of the uncertainity.

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

Q: We have had a good rally and some degree of turbulence in the last few days. How do you see things moving between now and the Union Budget?

A: I think we will be range bound. There are a lot of expectations which have got built in, in terms of either reforms or how the election results are going to pan out. The news flow on these will keep things volatile till a clear sense emerges of which way things are moving. So I would not expect the market to run away in this period; it's going to be very event driven.

Q: At this point though how deep would you say downside risk is for the market? For instance, is the risk present that the market pierces below 5,000 because of one of these events this month?

A: Given what we have seen time and again, it's just a very hazardous game to predict what the downside risk is. We do need to remember that a large part of this rally is liquidity driven. We were oversold so some correction was overdue, but it's been the gush of money which has come in, which has taken us to where we are.

Therefore, a correction can be deep depending on which events go or what happens to liquidity. So a 10% correction from any levels is fairly normal.

Q: What kind of price do you see ONGC settling at after yesterday's event; it's an important constituent of the index?

A: It's going to be driven by what happens to oil prices and this whole issue of subsidy sharing. So it's back to normal business as far as the oil stocks are concerned, it's these issues which drive these counters.

Q: If your call is that the market will see a more difficult patch from hereon, how do you approach some of the high beta names, for instance from real estate something like DLF ?

A: I think for the time being high beta will take a bit of a breather. We are beginning to see that there has been an element of profit taking partly because many of these stocks are doubled from levels that they had reached in December and in times of uncertainty you will see a bit of the trade going back to more defensive names.

So in the very short-term, till issues get sorted out, I am not sure anybody is going to take huge bets on the high beta names.

Q: DLF fell very hard yesterday on all sorts of reports alleging misreporting, but how would you approach the real estate space now in general?

A: If you are looking at demand for real estate which is at mid-income or base levels, that demand is strong. There are pockets where there is a slowdown, where the prices have become very high, particularly in the larger metros. So in terms of the real core of the sector, I think there is a certain amount of resilience.

But if we look at many of the companies which are listed, I think they are dealing with a whole lot of issues, particularly relating to overleveraging and overextension, and I don't think these issues are going to go away very quickly. Larger stocks like DLF etc have been trying to deleverage and selloff assets, but at least the news flow doesn't seem to suggest that that's going as well as it should. So these issues will continue to be an overhang on the sector, so from a stock performance point of view I don't see the sector again rallying for some more time.

Q: Autos have become a bit of sideshow, but yesterday's numbers were not too bad for most of the automakers. How do you approach that space now?

A: I think in autos there are two key concerns which are emerging; one is that the pace of growth going to slowdown and the news flow has been somewhat mixed on that particularly on company specific basis, so that's something which is a bit of a dampener on that pack and that's linked to the entire slowdown in volumes that we are seeing in consumer durable space.

The second concern is if stocks which are linked to rural demand are going to see a slowdown and we saw that getting reflected somewhat in the tractor numbers that came out yesterday, so that does nothing to alleviate that concern. So those are the two issues on the negative side.

What works for the sector is expectations that the interest rate cycle has peaked out and if we were to see a cut that would be positive which is why you are seeing these stocks not going anywhere and trading in a range.

Q: A word on some of the infrastructure names that we have been discussing. Would you buy them after the recent rally?

A: If I had to buy something in infrastructure I would stay with largecap names like L&T, but at an opportune time, not at the current levels.