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Yesterday's celebration was probably a bit premature as markets returned to their losing ways.
Yesterday's celebration was probably a bit premature as markets returned to their losing ways. The indices got off to a gap-down start, and the run of red continued through the session.
Calling it a "slap on the wrist", Sudarshan Sukhani, s2analytics.com told CNBC-TV18, “All I can understand so far is that we have these two levels: 5250, which still remains inspite of the upmove we saw yesterday -- and which fizzled out and failed -- and 5170. A close beyond either of these two numbers should give us at least short-term direction. Inside this 80 point range, it is futile to trade. So let it close below this number. I would say that the downtrend that we had earlier is probably intact.”
In an interview with CNBC-TV18, Mehraboon Irani of Nirmal Bang Securities and Sudip Bandyopadhyay of Destimoney Securities, spoke about their reading of the market and the road ahead.
Below is an edited transcript of their interview on CNBC-TV18. Also watch the attached videos.
Q: If we close this week in the red, it will be a six straight week of losses that the market has seen. Do you fear more downside from these levels?
Irani: Fundamentally, there are lots of headwinds. There are lots of concerns and you can’t digest — the fact that we are 15% above the levels where we were just three months ago and nothing much has changed. We need to accept the fact that the markets have gone up because of global liquidity. If one has to be optimistic, the optimism is largely around the fact that more and more money is likely to chase riskier assets across the world. We don’t need to be very happy of the fact that money is coming into India. Money is going from virtually to equity across the world, especially in emerging markets.
Should we bet our money that global liquidity will continue to drive up valuations? It is distinctly possible. I am not disputing it. But strictly on a fundamental ground, the reasons for being uncomfortable are much more than trying to possibly harbour hopes that the liquidity will continue to drive up prices, at most one can be hopeful.
The immediate trigger for the market will be RBI policy and the numbers which the corporates will announce for Q4 besides the clarification on something called as GAAR, which I think is as simple as that you either you make a clear cut exception that P-Notes are not going to be a part of this, otherwise I think the clarifications will be continuously sought after and it s not going to be easy answer, either a clear cut clarification or doubts are going to linger on that particular issue.
Q: I just wanted to get your thoughts in on this whole GAAR issue. We have heard many brokerages talk about not increasing their P-Note book as a way of perhaps minimizing their possible tax exposure. Are you hearing that as well in the market ahead of the new tax year beginning in April?
Irani: Yes, even I am hearing the same thing, but as regards this PN thing I think the only conclusion which I drew is that basically this was not the objective, definitely not. I agree all tax part with the government, but I really don’t know as to how P-notes can escape the tax mat unless there is a clear-cut statement that PNs are not good to be considered. Otherwise I honestly feel that one of the four conditions which they are putting they are going to be defeated on that or other way around if you are looking at it like what you are going to do to Vodafone, I think the same should be applying to P-notes, logically if you ask me.
So unless there is a clear-cut clarification or a clear-cut remark, okay fine P-notes could have excluded I think that this is a very grey area and I think the doubts are going to continue to linger for quite some time.
Q: You guys have a call out on JP Associates, which actually outperformed the market quite a bit over the last couple of weeks, in moving up to Rs 82-84. Today, it’s had a bad day. But what would you tell your investors to do on this one?
Irani: There are still a lots of question marks on the company’s strategy and at present level nothing much to lose. So that is possibly giving a proper answer to an investor, I think that is it because fundamentally whether its Rs 70-75 or Rs 80, I don’t think honestly one can have the heart, if one looks at the balance sheet to recommend the stock in the situation in which this overall Indian economy is right now.
But a stock which has come down so sharply, where the management is trying whatever it can to improve the balance sheet, I think at the present level if an investor has not exited already I think he can continue to hold on.
Q: Do you expect to see more downside for some these heavyweight banking names like Kotak, SBI etc.?
Bandyopadhyay: Not really. In fact, there has been lot of talk about RBI, what they are going to do or not do, as far as the credit policy is concerned.
The huge government borrowing, which has been announced, is definitely significantly higher than last year. It’s about 46% higher compared to last year first half, but if somebody had looked at the maturity schedules of the government debt it would have been obvious that it had to be done. So I really don’t see too much of a shock or surprise as far as large banks are concerned on the borrowing schedule of government.
Yes, the yields are under pressure for multiple reasons and definitely there is a liquidity crunch in the market. We are expecting some kind of a liquidity relief from RBI very soon. Probably they will not wait till the next credit policy on April 17, even before that they may come with some kind of liquidity-boosting measure like—maybe some kind of SLR or CRR—some measure on that.
That’s number one as far as the banking, I think that will ease to an extent the pressure on the banking sector in terms of liquidity. The second thing is on the oil scenario because obviously there is a talk about inflation not being under control so RBI will not cut the interest rates, but very clearly if somebody seize (check) the spot oil prices vis-ŕ-vis the forward oil prices, there is a USD 30 gap between spot and future, while the spot is USD 125 per barrel almost, the future, 5 years forward is about USD 95 per barrel. This is an unsustainable position. So very clearly it indicates that the market expects oil prices to come down. I think that should be a good news for the banking sector because if oil comes down, RBI will be in a position to cut rates.
Q: For a longer term, do you think that we have put a base in place for the market at this 5200 level or 5150 or do you think there is a possibility of getting back to those December lows of about 4600-4700?
Bandyopadhyay: What's happening is market is being driven by liquidity. There is no change in fundamentals over the last three-four months. We had a very challenging environment both in terms of the government policies, the macro headwinds and again corporate performance hasn’t been anything great, cannot be great under the current circumstances with the kind of cost of capital they are bearing today.
So, all put together fundamentals haven’t changed. It’s the liquidity which is driving the markets.
The way I read the global liquidity situation is likely to remain the way it is and if at all its going to improve further, with that in mind I think Indian markets should have liquidity and will keep inching upwards unless we do something very stupid in the domestic market which scares away the foreign investors.
Q: We are starring at a two-month low on the index. If you had to use this as an opportunity to buy a couple of stocks, just names 3 or 4 stocks that you would be interested in now?
Bandyopadhyay: Pharma has been a favourite with us for quite a sometime. I will pick up some pharma stock in the midcap range. One will be Divi’s Laboratories, the other will be Ipca, third maybe be Glenmark. I think Indian pharma has a huge potential and whether you call it defensive or a growth stock. We believe in pharma and Indian pharma growth story.
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