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Religare MF, Nomura rule out 20% cut in mkt, advice caution

Published on Sat, Jun 20, 2009 at 12:19 | Source : CNBC-TV18

Updated at Mon, Jun 22, 2009 at 15:38

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Religare MF, Nomura rule out 20% cut in mkt, advice caution

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Nifty

BSE | NSE 25/05/12

Are Mutual Funds betting on Nifty?

It was a bad week for Indian equity markets. However, Friday offered a glimmer of hope. After two days of closing weak, the markets on Friday posted a smart recovery. The Sensex and Nifty closed above their psychological 14,500 and 4,250 marks respectively. However, on a weekly basis the Sensex was down 4.5% while the Nifty was down 5.7%. So, how should investors trade now? What factors do they need to watch out for? Experts Vetri Subramaniam and Prabhat Awasthi delve deeper.

Also see: Sensex, Nifty slip over 4.5% this week; oil & gas down 10.5%

Vetri Subramaniam, Head-Equity Funds, Religare Mutual Fund, feels markets have begun to correct. "Markets are currently in a trading range. Earnings visibility is low. So, investors must be very cautious while picking stocks."

Seconding Subramaniam, Prabhat Awasthi of Nomura Financial Advisories & Securities said markets may see a further correction but was quick to add that it is unlikely to be a deep one. He rules out another 20% correction from current levels. "The markets are trading at 15.5 times, which is slightly on the expensive side."

Monsoon watch:

Subramaniam feels the arrival of monsoon will have only a sentimental impact on markets. He said the impact of a weak monsoon will depend on the government's agri policy action.

Awasthi too does not see any major stress in the agricultural system. "Only a severe shortfall in monsoon will be a worry." He feels government moves on fiscal, manufacturing front are more important.

Eye on the Budget:

According to Subramaniam, the Budget will not be as important as the market makes it. "We are looking for the government to make the right noises in the Budget. The key will be follow up government action after the policy announcements." However, Awasthi feels the Budget will be important due to the huge fiscal stress.

Here is a verbatim transcript of the exclusive interview with Vetri Subramanian and Prabhat Awasthi on CNBC-TV18. Also see the accompanying video.

Q: Has the process of correction begun or you don't think it will be a deep one?

Subramaniam: The sense we get is that some sort of a correction has obviously started. Again, the trends appear to be fairly tightly correlated. Its not just India that is seeing a sell-off over the past one week, markets in Asia have seen the same. For that matter, markets in Europe or Latin America or other emerging markets have seen the same. So, its time for everybody to hit that pause button and figure out how much of these recent developments that we have seen in macro data have translated into fairly significant jump in stock prices, how much of that is justified, and how much of that is going to come in earnings. These are the questions that we have to grapple with and a pause is something that is necessary at this point of time.

Q: Are you calling this just a pause and no more than that or has a bigger retracement begun?

Awasthi: From a valuations perspective, it is trading at 15.5 times. It is slightly more expensive with respect to its history, but it is in line with most other regional markets. It has corrected back to valuations that are elsewhere. So, you can call it fairly valued.

In the short-term, it is quite possible that markets can move because it had moved about 55% in a very short span of time. There could be some correction, but I don't think a deep correction is likely, primarily because of two reasons. One, liquidity in global as well as Indian markets is at all-time highs. It is clearly visible in various liquidity parameters that you track. So, there will be buyers of assets at lower prices.

While a correction is quite possible, I don't think it is likely to be a 20% sort of correction at these levels having already seen a 6-7% cut.

Q: Liquidity is what people are worried about. This has been a momentum market fuelled by liquidity from a last couple of months which stopped for the last one week. Do you sense that the liquidity tap will open up again or have issuances like QIPs soaked up a lot of the money which had to come in?

Subramaniam: Some of it has already been soaked in. Just to put things into perspective, if I remember the data as of two weeks ago, the kind of four week fund flows which had happened into emerging market funds is equal to the flows that we saw in October-November 2007. That was around the time that most global markets were topping. I tend to come from the school of thought that eventually liquidity follows prices rather than causes prices to move in any specific direction. So, that's way will play out again. I wouldn't really play too much argument to the fact that there is liquidity lying around the sidelines.

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