See downside on Nifty capped at 5000-5200: Sampriti Cap

He tells CNBC-TV18 that what has happened is that global headwinds have started building up with a lot of domestic events also slowly shaping up. “Right now of course we are in a state of pregnant expectations and we haven’t really seen delivery yet. I continue to expect that we will see a diesel price hike somewhere between the presidential elections and the next session of Parliament, urea could also happen but that’s trickier,” he adds.

In this environment, he feels the downside is probably 5,000-5,200 while the upside remains 5,400-5,600. He says it’s important to remember that in this rally from 4,700 onwards, India has actually started outperforming whereas India was actually underperforming and one of the reasons that has led to that is the fact that foreigners who were seriously underweight India are getting closer to a neutral position but we are far away from an overweight position as far as foreigners are concerned.

Shah finds that every USD 10 reduction in crude leads to a 0.3% cut in our fiscal deficit and 0.2% cut in our current account deficit provided the rupee remains stable. On commodities, Shah feels, it will continue to correct and is quite likely that globally markets will continue to underperform and India may outperform as long as we see the government taking measures to ensure that coal availability is there, that environment clearances are happening, that they try and facilitate land acquisition, clear FDI proposals. “As long as that happens, there is a case for India continuing to outperform and that we don’t a sell-off below 5,000.”

Below is an edited transcript of his interview.

Q: A word on Tata Consultancy Services (TCS)? How are you approaching the IT bunch now?

A: Last time after Infosys’ results, I had said that Infosys is off my investment radar screen even though it is a great company and our top picks would be TCS and HCL Technologies which is the current consensus as well. I think TCS has reported a good set of numbers but it is also important to remember that they have seen a 1% price decline. I think pricing is going to be a key challenge for most companies even though for TCS it has only been a 1% decline.

I think the volume growth has been 5% which is a fairly good number because 1% they have lost because of cross currency. The fact that they are able to scale up the business, they are growing in most geographies, they are growing across verticals, that is a fairly good sign.

TCS had some trouble a few years back; they got over it, cut their prices but now their margins are in-line with Infosys as well and I think there is a case that Infosys’ margins may fall off as they need to continue cutting prices. So TCS will continue to remain the top pick but it is not a stock that you can jump and buy because headwinds continue whether it is in Europe or the US. Globally, growth is a very serious issue and you are going to see regulatory action there. So TCS would remain the top pick but it is a stock you want to buy on weakness.

I think you would want to wait for HCL Technologies’ results but at the same point of time, the only thing that I would like to add on as far as Infosys is concerned is that the price is back to where it was in 2008 and the earnings are higher. The point is that Infosys has finally started taking price cuts and focusing on volume, they are talking about 8-10% volume growth for this year, which is a reasonable growth. It is still lower than what NASSCOM is forecasting.

Infosys is in the middle of a transformation. I think Infosys is now finally getting to a price where it is back on my investment radar screen but I am in no rush to buy it there. As far as the mid-sized companies are concerned, it is very difficult to jump in and buy some of the mid-sized companies when the largecaps are facing some amount of headwinds. So TCS’ results are good but they are not great.