Why is Brics Sec bearish on mkts in the long-term?

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Why is Brics Sec bearish on mkts in the long-term?

In an interview with CNBC-TV18, Anand Tandon of Brics Securities spoke about his reading of the market and his outlook.

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Excerpts from Bazaar 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 29/05/12 Are Mutual Funds betting on Nifty?

Anand Tandon of Brics Securities does not see the markets making big highs from here on. He cites rising interest rates and taxes, and lower foreign inflows to bolster his case. "Interest rates are likely to move up or stay where they are in the long-term. This does not augur well for markets. Primary issuances are likely to be large and are not good for the secondary market. There is a higher probability of foreign investors taking some money off.

"The last year has surprised in terms of gross domestic product (GDP) growth, so this year would be a lot more difficult to surprise. Fiscal deficit will be an issue this year. Does that mean that taxes have a higher probability of going up than coming down? I think there is a higher chance of it going up than down. You can do the maths, I cannot think of anything which should take the market up big time from here," he explained.

He does not rule out a further 15-20% correction. Tandon expects markets to end the year more or less where it started.

Below is a verbatim transcript of the interview. Also watch the video.

Q: Are you expecting a repo hike today and how much of an influence or how much of a directional guide will the policy be you think for the equity market today?

A: What consensus seems to indicate is that they will do an increase in cash reserve ratio (CRR). Beyond that there are somewhat different opinions on whether or not there will be a change in the repo, reverse repo and so on. Broadly, if one goes by consensus, it should not affect the market at all because still many people have pointed out that there is more than adequate liquidity in the system. Also, the fact is that the Reserve Bank of India (RBI) by itself is somewhat toothless tiger because it is not so much the Indian markets, which is being determined by the RBI policy as by the international flows and what happens in the rest of the world.

Unfortunately, we have come back to a stage where we are watching Mr Bernanke more closely than Mr Subbarao.

Q: So leaving aside that event, how are you feeling about the market anyhow?
 
A: The market has had a good reasonable correction right now and therefore to some extent it is somewhat oversold. I wouldn't put a pass it to make an attempt to come back up again. But if you were to look at a slightly longer-term picture, the way I look at it is you have to weigh the probabilities. Interest rates: Are they likely to move up from here or move down? Clearly move up if not stay where they are, which is not good for the market. More primary issuances - are they likely to be large or small? Clearly they are likely to be large, which is not good for the secondary market.

Foreign capital: Will it likely to come back in or move out? They have had a rocking year in emerging markets for the most part. Most emerging markets are doing 100% growth rate. Would you take money off the table or leave it on especially in a possible tightening situation? I would imagine that the probability is in the favour of taking some money off.

Domestic growth: Is it likely to sustain at the higher level or will it start to taper off? I would imagine that it is evenly divided at the stage. But I think because the last year has surprised in terms of gross domestic product (GDP) growth, I would imagine this year would be a lot more difficult to surprise.

Fiscal deficit: Will it be an issue this year? On the balance, probably yes. Does that mean that the taxes have a more probability of going up and coming down? Clearly more probability of going up or down. You can do the math. I cannot think of anything which should take the market up big time from here.