Upside capped at 5200, buy consumer stocks: Vibhav Kapoor

Vibhav Kapoor of IL&FS believes that the Nifty has a trading range of 4800 to anywhere between 5100-5200 and expects to remain in that range for the time being. In an interview to CNBC-TV18, he said, "This range is there at least for the time being, maybe for the next 1-1.5 months to 2 months but this also is subject to not getting any shocks from the global environment for e.g. if you had a major problem in Europe then range could break on the downside".

Adding that volatility in the market is likely to continue for two months, Kapoor stresses that only a policy action may push the equity market to perform. He, too, is expecting a rate cut of 25 basis points on June 18.

As an investment strategy, he advises to buy consumer related stocks like autos on dips and says most negatives in RIL has been priced in.

Also read: Bank Nifty may outperform; buy banks on dips, says Sukhani

Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying videos.

Q: Things have moved with quite a bit of alacrity this week. Are you getting a sense that the market is moving towards that 5,200 zone or is this about it in terms of an optimistic pullback?

A: That’s difficult to say exactly where it will end. Right now, the market is moving in a trading range of 4,800 to anywhere between 5,100 and 5,200. So, I expect that range to remain for the time being.

Q: Falling crude has pretty much been a blessing in disguise for us. Now, we have the stability in the rupee as well. How important do you think these two factors are to put a base in the market now?

A: I think the fall in oil prices, which we had been expecting throughout for the past several months, has been a big positive for the market. This latest rally is largely fueled by the fall in oil prices. Fall in oil prices automatically has a stabilising impact on the rupee because your current account deficit can come down significantly, if oil remains at these levels for a prolong period of time. That, in turn, obviously has a positive impact on the equity markets. So, a very significant portion of little bit change in sentiment that we have seen is due to the fall in oil prices.

Q: What you expect to hear from the Reserve Bank of India come their next policy meet?

A: Lower oil prices make it easier for the Reserve Bank of India (RBI) to cut rates because it has beneficial impact on inflation and inflationary expectations. Therefore, I would expect that the RBI would take some action, probably 25 bps rate cut is what we would be looking for.

Q: A lot of this rally seems to premise though on the fact or the expectation that the second half of the month will yield big liquidity move globally, whether they come from the Fed or they come from any other quarter. What likelihood would you attach to it? If that were not to happen, what kind of downside risk would you say is present for markets?

A: After Bernanke’s testimony yesterday to the Congress, the chances of an immediate QE3 have decline sharply. I think the reaction you see in the global markets today is partly because of that. So, I doubt that there is going to be an immediate QE3 in June.

You could get liquidity from the ECB. But that will only happen if situation worsens in Europe either because of Greece or because of Spain. So, it is quite unlikely that you will get a big bout of liquidity immediately, if things remain as they are today.

The next couple of months are going to be difficult from a global viewpoint because the US has started to show some signs of a slowdown, China is already slowing down and the European situation is going to remain pretty volatile over the next two months, even if Greece were to vote to stay in the Euro Zone. I think you have Spain which is becoming a big problem. So, the next couple of months are going to be pretty volatile on the global front, particularly from the European side. That is going to have an impact on the Indian markets as well.