Market may drift down further: Motilal Oswal AMC

In an interview to CNBC-TV18, Nitin Rakesh, chief executive office of Motilal Oswal Asset Management Company says, the market is going to drift down further. “Unless we see some real positive trigger, I think one will have to brace for fairly long winter in the market. May be not a very steep downside, but a fairly listless environment where you may not see a lot of activity and volume may dry up,” he asserts.

Also read: Nifty to breach 4900; sell on intraday breakdowns, says Sukhani

Below is the edited transcript of the interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: It’s been a weak stretch for the market and the macro and global have not helped. Do you see more downside in the near-term?

A: Clearly, it’s been one spat of bad news after another. Domestically and globally, we are not seeing any signs of positivity. So, clearly the market is going to drift down. Currency is not helping, and earnings have been mixed as expected. So, unless we see some real positive trigger, I think one will have to brace for fairly long winter in the market. May be not a very steep downside, but a fairly listless environment where you may not see a lot of activity and volume may dry up.

Q: How important a role is the rupee playing in all this? What is it that even equity guys feel may happen on the currency?

A: I think the equity managers are the last ones to predict what's going to happen to the currency. But volatility in the currency makes earnings projection for a lot of the businesses hard. It also has a big impact on the bond markets and hence the macro policies and the monetary policies. So, clearly everything starts to steam roll from there.

I don’t think the issue is so much that we have come from 44-45, eight-nine months ago, to 54 today. I think the issue really is the movements have been pretty sharp. We went from 44 to 54 back to 49 and now back to 54. So, I think it’s the unpredictability and the volatility that is going to spook the market much more than anything else.

Q: Can you see a positive trigger on the horizon?

A: If you go back historically, equity markets react to two main trends - one is interest rates and second is earnings. We are clearly in a cycle of easing, even though the market is not believing it. The 10-year bond yields are not letting us believe that we are actually on the easing cycle because they are still stubbornly stuck at above 8.50%. But we are in an easing cycle. The pace of easing is something that is up for discussion, debate and question. I don’t think even the RBI has a clear handle on what is going to be the pace of easing because it is all going to be driven by data that they keep seeing.

The second aspect is earnings. At this point in time, yes, crude prices are important because again that goes back to the whole macro situation. But at the same time, if we see global commodity prices stay soft or cool off a little more in line with crude then I think you start seeing a base being set up for earnings growth, probably maybe two quarters down the road. The market, trying to discount things that will come up in the future, will start seeing some positive trigger from that perspective.

Yes, crude prices are important, but microeconomic situation is equally important. In the last 18-24 months, it is not that earnings have not grown across the board, I think it has been a very selective market. Some companies have grown rapidly, 25-40% earnings growth, whereas there are others that have got hurt badly. So, at an aggregate level, we have not seen much growth, but there are sectors and pockets that have seen growth. So, I think we need to see that at a much more broader base. As these two things unfold, the interest rate situation or the monetary easing situation and potentially the global commodity cycle, we might see some trigger.