Will put money in midcap technology stocks: Damani

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Will put money in midcap technology stocks: Damani

Ramesh Damani, Member of BSE agrees that the markets are struggling to find support levels. He is expect markets to grind in next two quarters.

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Indian markets are still not out of the woods and are trying hard to negotiate the highs of last year. Infosys' December quarter results, low November industrial output data and inflation are dampening market sentiments. 

Ramesh Damani, Member of BSE agrees that the markets are struggling to find support levels. He expects markets to grind in next two quarters.

In an interview to CNBC-TV18, Damani said that 20500-21000 is higher end for the Sensex. While betting on the inherent strength of the Indian economy, he said the Reserve Bank of India (RBI) should not hike interest rates in a knee jerk manner. As an example, Damani quoted China, where the markets are struggling despite a sound economy.

As a strategy, he suggested investing in midcap technology companies.

Below is a verbatim transcript of his interview with CNBC-TV18's Mitali Mukherjee and Udayan Mukherjee. Also watch the accompanying videos.

Q: Has your head been spinning as well, it has not been the best of starts, has it?

A: Absolutely not. We are so spoilt in India, we are so used to overperforming, the Dow was up 5%, we would be up 10% and if Hong Kong was up, we would be up. I think this is for the first time in a long time India is underperforming global markets, whether it is America, whether it is Hong Kong. I think we don't know how to handle it.

Within that range, ofcourse it is brutally volatile, 300 points up, 300 points down almost in a flick of an eyelid. So, like the rest of the analysts' community, I am flying blind in this one. We have just seen that none of these instruments that we normally watch to track the market, to take temperature in the market seem to be working. So, as you rightly put it, it is 360 degree whirlwind.

Q: Your show is about maxims, so does that old maxim, 'be greedy when others are fearful', work in the current environment?

A: It is probably too premature to do that. I think the markets would go to an extreme position as it were at the bottoms of 2008 bear market or the top of the 2007 bull market. I don't see we are anywhere near that. If you look at it very technically, we are down 7% from the peak. I agree cash seems like a much lower index level, but we clearly not in an extreme in terms of investor sentiment readings that maxim, which ofcourse I have covered in my show in RD360, works best at extreme ranges in the market. The last time the market fell in 2007-2008, we got to almost extreme temperature reading of being fearful at that time and the money from that was so quick. You get the flip when the market peaks out in the bull market, but my sense is we are nowhere near those extreme sentiments.

Q: What is the prognosis then even if you were to block out the noise of the early part of this year, still a rangebound year or do you think it could surprise a lot of people by the end?

A: My sense is that 20,500-21,000 on the Sensex is the higher end of the market for now. The market seems to be making or understanding how brutal a level that old psychological high for the market is and how difficult that is going to be taken out. So, I would suggest you that is the ceiling.

In terms of the bottom, I think the market is struggling to find that, maybe in the next few days, we will find a bottom. So, it seems atleast in the next quarter or so, we will struggle, guide our way through the range that the market is going to establish over the next few days perhaps.

Q: You study cycles for the market very carefully as well. In your experience when rates are this high in the system, when inflation is this high, how do equity markets, particularly ours tend to perform?

A: Badly, inflation is pretty bad for equity markets because there is always a tendency to move into debt and away from equity during these periods. To give you another example, in more mature markets, which I have said many times the Dow hit 1,000 for the first time and I think it was 1968, the first time the Dow ever hit a 1,000 was in 1968, it didn't cross that level again until 1982 for a period of 14 years despite the US economy expanding, despite some major industries coming in at that time. I clearly don't expect the market like that because we clearly have much more liquid free flowing market than that. But market sometimes make new highs and then take a long time to cross that on a decisive basis, our own markets between 1992 and 2003, when the range was 4,500 to 2,800.

My sense is 21,200 on the Sensex is extremely important psychological level for the market. It will take a lot better earnings, a lot better confidence, a lot better improved infrastructure for the market to take that out. But the heaven is not breaking down. The market even builds a strong range and remains there in that period for six months to one year. I don't think heaven is going to fall.

Q: What is your favourite maxim from the many that you have discussed with your analysts in the series?

A: There are many. But ofcourse Warren Buffet standout very easily that 'in the short run, the market is a popularity machine and in the long run, it is a voting machine'. The cream will always rise to the top. The second one, which I find very appropriate for this time and era, particularly yesterday, when Infosys results came out, that 'it is not the new that is important, it is how market reacts to the news that is important.' Just for a slight disappointment in volume, the share has got trashed, it shows that the market is inherently nervous and that inherently it was not ready to go up. So, it was the reaction to the news more than the actual reported earnings that were important to the market. So, those were some of the maxims.

What we have done is that we have taken all the veteran watchers of Dalal Street, we have Sanjoy Bhattacharya, Rakesh Jhunjhunwala, N Jayakumar and divided this show into various segments. With Rakesh we did his very own show called Rakeshisms and we did Dalal Street Wisdom with Madhu Kela and Jayakumar. So, we try to bring the wisdom of generations. It said that quotations capture the wisdom of a generation and asked them to explain it in terms of their own stories as to what works in the market, what maxim prompted them to think that the market was at a peak, what prompted them to buy a stock when it was very unpopular. So, we try to have a lot of fun on the show, bringing in different opinions and trying to explain the wisdom of many generations through quotations.