Policy action driving near-term market mood: Nitin Rakesh

The short-term sentiment in the marker will be driven by policy action and announcements from New Delhi.

"Based on the intent and the quick follow through of FDI notifications, it does look like there is a fairly high conviction behind all the announcements that have been made," he added.

According to Rakesh, the market is trying to digest all the newsflow from Delhi. "It is currently in the middle of sell on rise and buy on dips phase. I don’t think we can continue to see a sell on rise markets for all periods," he added.

Below is the edited transcript of Rakesh's interview with CNBC-TV18.

Q: How do you see the market moving from here? Yesterday it was pegged back a little bit about some impression of political uncertainty, but do you think the news from New Delhi can keep the markets warm over the next few weeks?

A: We have seen a sharp rally over the last 10 days, so it was a good reason for the markets to take a breather yesterday. The short-term sentiment is being driven by newsflow from Delhi, primarily on what is going around on the announcements on the reforms front as well as political uncertainty/activity that is going on.

For now it does seem like short-term momentum will be driven more by what is going on in Delhi. Based on the intent and the quick follow through of FDI notifications, it does look like there is a fairly high conviction behind all the announcements that have been made. The fear market had on a rollback seems to have been taken off the table, which is why we might see some sort of bounce back today.

Q: So far the government has acted very boldly, do you expect anything by way of incremental reforms to come through and could this help in the re-rating of the Indian markets?

A: There is fairly high degree of optimism given that we had a reform holiday for almost 3-4 years. Once this started and opened the tap, it does look like there might be some more follow through.

People are talking like things about insurance FDI and a bunch of other things that have been held up for the last few years. How much of that comes through immediately, how much of that comes through over the next month remains to be seen.

What we need to wait and watch for is how they sustain what so far they have announced for example how successful the FDI implementation goes through? Even on the aviation front, we have seen some deals being talked about in the media. It will be important to have a timetable of these things over the next few months rather than rush through with whole host of things.

If that happens on a consistent basis, then the markets will get re-rated. There are two or three other things happening around that both from a macro point of view, so we are seeing very loose liquidity from across the world and that should aid in any environment for the markets to stay buoyant.

Secondly, even in the domestic macro picture slowly we are beginning to see on the monetary policy front things being better. All in all, put together it does look like the markets may have seen the worst behind them.

Q: As an investment strategy has the market strategy changed from sell on rise to a buy on dips market? Or because of the fragile political environment this would not be a prudent thing to do at least at this point in time?

A: We are somewhere in the middle of those two phases now. The market seems to be trying to digest all the newsflow. There is a camp that turns negative very quickly which is what we saw yesterday.

But having said that, they are going to establish a bottom below the market. I don’t think we can continue to see a sell on rise markets for all periods, but we are somewhere in the middle of those two phases right now.

Q: Would you be upping weightage in high beta now or would you not get into the sell the defensives and buy high beta kind of trade which has gained fancy over the last couple of days?

A: It is the sector rotation; it is the risk rotation that is going on. Given the environment that we are in, it may not be a bad idea for you to kind of risk weight, and add some risk to your portfolio especially given the fact that some of these names can see a fundamental change in the way they were perceived by the markets.

For example, some real estate names could see a sea change if we see a significant FDI inflow into the market. We are again in the middle of the phase where you have to go from being purely defensive or being purely high beta to somewhere having a judicious mix of both.