Given the way macros are shaping up, the market continues to face near-term headwinds and there is a threat of the Nifty falling below the key support of level of 5,500, says Nirmal Jain, chairman, IIFL.
India continues to grapple with macro economic problems like high interest rate, inflation, wide current account deficit and barring monsoons, there is no other positive cue for the market as of now, says Nirmal Jain, chairman, IIFL.
Though Jain is not too pessimistic on the market from current levels, but he cautions that given the way macros are shaping up, the market continues to face near-term headwinds and there is a threat of the Nifty falling below the key support of level of 5,500. In the best case scenario, Nifty can go back to 6000 level, he added.
Further, he added that overseas investors have holdings concentrated in FMCG, IT and pharma space and they have now started offloading positions in private banks. But, he does not see large ticket selling from FIIs yet.
Like most experts, he expects India’s FY14 GDP growth to be below 5%.
Below is the verbatim transcript of Nirmal Jain's interview on CNBC-TV18
Q: This morning we have traded quite a bit below 5500. Is the long standing range in real threat of breaking down?
A: It is quite under the threat of being broken down and whatever cues we are getting from macro or all the factors that can impact the market, they aren’t positive. We have been talking about it, high interest rate inflation that is shocking, the private sector investment and on top of that we have current account deficit for which now government as well as central banks seem to have run out of options, unless they increase customs duty or they come up with sovereign bond.
Now customs duty will have an impact on the economy which is negative. So at this point in time we are looking at a situation where gross domestic product (GDP) for the year can go below 5 percent. So other than monsoon most other macro variables aren’t looking positive. So at least in the foreseeable future if something dramatic happens this sentiment is subdued.
I am not very pessimistic in the sense that not that the market will crash or we are into a market which can go much further down or rupee can further crash because there are certain things which can go and there are certain things on which government will have to take some action now. In fact they have been discussing, so most of these proposals are on their table and it is just a matter of time that some corrective action is taken. For the time being there are very few positive cues and lot more negative ones.
Q: What if FIIs begin to take a dim view on India because everybody seems to be hoping that for some reason they will not sell and therefore the market will not tank. Do you think the way the market is these days in terms of how shallow it has become, it can even absorb USD 4-5 billion of FII outflows which can happen because of them taking a negative view on Indian macro even for the next one-two years?
A: I don't think at this point in time market has capacity to absorb USD 4-5 billion of FII outflows. And even FII knows that, most of the fund managers are Indian or they know India very well. So they know how hollow the Indian market is. If they press the sell button then they know that prices crash and there won't be any buyers.
FII investment is mostly concentrated in FMCG, pharma, IT and a little bit in private sector banks and NBFCs. And in the last few weeks they have exited at a least part of their holdings in private banks and NBFCs and may be now they are looking at the FMCG sector to lighten their portfolio. So if you even look at indices they have been held up by just these three-four sectors and may be 5-10 companies.
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