See little impact of FOMC meet; buy JSW Steel: Experts

Moneycontrol Bureau

The outcome of Federal Open Market Committee (FOMC) scheduled tonight could be neutral to slightly positive for Indian indices as most experts believe that US Federal Reserve will continue with quantitative easing till December.

Equity benchmarks today shed more than 0.5 percent amid volatility on profit booking and further depreciation in rupee. BSE Sensex fell by 102.59 points to close at 19223.28, after 499 points rally seen in previous two sessions. The Nifty slipped 36.45 points to 5813.60.

Rupee depreciation continues to haunt investors. Rupee today closed at record low of 58.6425 against dollar from 57.87 on Monday following strengthening of US currency.

SP Tulsian of sptulsian.com does not see too much damage from FOMC meet and believes that market reaction would be neutral to mildly positive. "One can remain cautious on the financial stocks, maybe the banking ones because that it may have a direct impact on that," he said adding that whatever correction had to happen due to FOMC related expectations has happened in the first half of June series. 

However, Lakshmikant Reddy of ICICI Prudential said that there could be some reversal in foreign institutional investor (FII) funds in a short term following FOMC policy. But he also added, "Our own belief has been that the reason why capital flows have been coming to countries like India has been the significant growth potential that exists between countries like ours and the developed world and as long as our growth rates and our growth potential remains high relative to US or Europe etc, the long-term capital flows would come in."

Technical analyst, Sudarshan Sukhani of s2analytics.com believes that the market is in a short-term uptrend as it is able to find buyers after every sharp dip. "We should be looking for higher levels. I think we should cross 5,900 and even try and make a dash for 6,000."

However market continues to remain volatile for retail participants, experts noted. Tulsian believes that real retail interest will not return till the resumption of the new government, which is still 10-12 months away.

Also read: FIIs will continue to enter India via ETFs: Raamdeo Agrawal

"The kind of distraction which we have seen in the midcap stocks which are generally held by the retail investors have been pity. So, I don’t think that retail traders or investors will come back to the market in the next maybe six to eight months," he added.

Reddy believes that market will remain rangebound till there is convincing evidence of economic growth coming back in a materially higher manner. According to him, tepid corporate earnings growth is the biggest concern for the market currently. “Last year it was 7 percent on a full year basis and in the fourth quarter it was practically close to zero,” he said. Thus unless economic growth returns, corporate earnings growth may remain in a single digit.

Poor earnings growth also indicates that there are very less chances of  equities outperforming fixed income returns in the short term, which could also be keeping retail investors away from stock indices.

To buy or not to buy?

Shares of Reliance Communications today gained 11 percent to end at Rs 123.70. But Tulsian believes that the stock has no reason to rule beyond Rs 120. He regarded today’s gain as purely technical then fundamental. “I don’t think that the fundamental news of TRAI is making the stock to move up…strong hands have been holding the stock and that is the reason the stock is not going down, maybe below a level of about Rs 105 or so in the extreme cases,” Tulsian added.

He advised investors to remain away from dull and boring stocks like Ballarpur Industries. The stock is down 40 percent on a year to date (YTD) basis and it is currently trading at a lifetime low of around Rs 13. Tulsian said that investors have never made money in the paper stocks the sectors has always been disappointing. Even in case Ballarpur Industries the financial performance of the company has been very flat, experiencing a marginal decline on every quarter.

Tulsian gave two buy calls in the last hour of trading. First was JSW Steel and second being Adani Enterprises. “We have seen the renewed buy coming back into all the ferrous steel stocks. If you take the call on Steel Authority of India (SAIL), Tata Steel, JSW Steel because they all look to have bottomed out in this last one week,” For a short term he gave a price target of Rs 715 for JSW Steel with a stop loss of Rs 697.

Adani Enterprises have also sharply corrected from Rs 215 to about sub Rs 180 in maybe 8-10 trading sessions. “We have been seeing the stock hugely oversold and some short covering coupled with the renewed buying at the lower level is seen coming back into the stock,” Tulsian said. He advised a long position on Adani Enterprise with a target of Rs 191 with stop loss of Rs 185.