According to UR Bhat, managing director of Dalton Captial Advisors, the market may experience some turbulence ahead, mainly due to global pressures.
Indian equity indices started the Budget week on a dull note, with both major indices recording losses for the first day of trade . According to UR Bhat, managing director of Dalton Captial Advisors, this weakness in trade will continue going forward.
In an interview to CNBC-TV18, Bhat explained that the market could trend lower for the next few weeks mainly due to global concerns. With the Eurozone crisis rearing its head again, and a possible pullback of the US Federal Reserve's quantitative easing program, investors are opting to pull out their money and stay on the sidelines. "The market could correct sharply in case of a risk-off trade on EU issues," he added.
However, Bhat believes there is no reduction in the foreign institutional inflows (FIIs) into India.
Speaking about the upcoming Union Budget, Bhat says that the market is likely to experience a bounce back in case the Budget surprises positively. “If the Budget is good and if domestic investors regain some confidence and they stop selling, I think the flows from FIIs will ensure that the market would probably trend towards about 6000,” he said. On the other hand, if the Budget is a non-event, Bhat believes the Nifty will consolidate between 5,700-5,900.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: Rough cues globally over the last couple of days. Do you think we are setting into a global correction?
A: In the short term, maybe, because I think the position in the US on the debt ceiling negotiation between the Republicans and Democrats is sort of hardening. News from Europe continues to be quite bad, with the Italian election results causing more confusion and the downgrading of UK. All this seem to suggest that there are volatile times ahead at least for the next few weeks.
But at the same time, it is not as if the quantitative easing stance that developed markets have will be withdrawn anytime soon. So money would probably keep coming, but there would certainly be some trepidation because of all the events in the US, UK and the rest of Europe.
Q: Do you think you can get away with 5800 on the Nifty given a reasonably okay Budget, or are the port ends pointing towards a much deeper downside in the near term?
A: With a good Budget I think the market can really bounce back because it is really looking for some sort of a relief rally. If the Budget can provide that, I think that would be quite a jump; 5800 could be history if the Budget is very good.
But if not, I think the market will trundle along around 5800, mainly because the international situation is not very conducive for a huge rally. So I think it will be either around 5800, plus or minus around 100 points, or if it is a very good Budget, then I think it could probably be somewhere near 6000 levels.
Q: Till January, most institutional investors had an overweight position going on in India. If there is global risk aversion, what would they do differently even if the Budget is positive? Do you think incremental cash would come into the market courtesy the Budget?
A: If the Budget is very growth oriented and pro-market, I think incremental flows could come in. But even otherwise, we have almost got USD 8.5-9 billion from January. So the force of FII flows has not really weakened in anyway. It is just that the market has not really done well despite about USD 4-4.5 billion coming month to date in February. We still have three-four percent correction in the market. So I think it is domestic factors that are really bringing down sentiment.
But going forward, things might look better if the Budget is good. Also, if there is some solution to the debt ceiling issue in the US and some solution to the Italian government formation, I think things could look better.
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