See Sensex in 9K-11K range for next 6-9 mnths: UBS Sec

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See Sensex in 9K-11K range for next 6-9 mnths: UBS Sec

Suresh Mahadevan, Head of Research, UBS Securities feels markets are in a midst of a clear cyclical slowdown. He feels that in the short term, markets will be going back to below 9000 levels. "It’s probably safe to put a 9,000 to 11,000 kind of a range for the next 6-9 months.”

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Excerpts from Closing Bell on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Suresh Mahadevan, Head of Research, UBS Securities feels that markets are in a midst of a clear cyclical slowdown. "We have seen the RBI and government on the front foot being pro-active and it's a question of time before things start getting better."

Mahadevan said investors have a much more cautious outlook but people are still interested in India. "Some of the themes that are emerging are how decoupled or isolated is India to the global slowdown, we have seen and there has been a fair amount of debate in terms of various panels as well as company meetings on that and people are looking at positive catalysts which are likely to emerge over the next 6-9-12 months."

Expectations on earnings:

Mahadevan said, "In this earnings season what we are generally seeing is on the revenue front, we are still ok but at the operating level there have been clearly some disappointments and recalibration is a continuous process. "Given the fall in stock prices and what we are doing systemically both at the country as well as the regional sector level just look at each kind of company and see whether are we taking a conservative view because clearly the market prices have come down. So, we can still afford to take in some cases the conservative view and still have a compelling case to buy a company. That is something we are doing and it is a continuous process. Our earnings growth for the next couple of years were anywhere between 18%-20% that is FY09 and FY10, and now we have come down to around 14% for FY09 and around 12.5% for FY10. So, there has been some downward revisions and particularly mostly the cyclical sectors have had the most of the revisions in the sectors."

Expectations on FY09 and FY10 by Sensex EPS:

Mahadevan believes EPS should grow at around 12%. "If you take around 12%, then we will end up at around 930 for FY09 and 1050 for FY10. In terms of fund flow, there are four things which drive markets, valuations, earnings growth, liquidity and sentiment. If you look at it from India's context on all these four perspectives, for valuations we maybe close to a floor and we  touched lower valuations and came back in the past and for earnings growth the consensus numbers are coming down. The market has discounted that in advance and that leaves us with liquidity and sentiment which are both fairly negative for India. For most part of this year, it's been fairly negative on both those plans."

According to Mahadevan, liquidity and sentiments drive the market in the short and medium term. "We need tangible positive catalyst and these are the ones which are difficult to predict but sitting where we are but looking forward to the next 6-9 months, I don't think there is a very high chance having a very tangible positive catalyst at this time."

Mahadevan said markets will stay rangebound for the next six-nine months. Beyond that on a 18-24 month view, he is quite positive because inflation will start coming down and the economy after cyclically slowing down will also start reviving and that will coincide with political uncertainty kind of getting over after May. "That is when the markets will start rallying because the markets tend to look at one quarter in advance and maybe other times about 2-3 quarters ahead, he added. "When sentiment and liquidity are negative currently, I would think we need tangible positive triggers, economic revival and political uncertainty going away etc which will really help us."

Sajiv Dhawan, JV Capital Services said from the 3,000 levels, we are slated on a maximum upside momentum of 10-15%. "You have seen 5% of that today itself. So from the short-term perspective, where people would start to short sell and take profits, these will be probably the current levels."

 

Where is the banking space headed?

 

Dhawan advises to hold on to banking space. "It's a sector, which has been liked probably for two reasons. Over the next coming one year, the sector has been heavily sold off but again it obviously had a good bounce of 20-30% from the lows. On today's news, you must have seen all the banking stocks rally sharply. It is one sector with the constant flow of good news. So, hold on to your PSU banking stocks. Private sector banks can be bought with a bit more speculative money considering the liquidity situation, the fear that investors have for those banks at the moment. But otherwise it is a sector, I won't be in any particularly hurry to get out of just yet."