Indian mkts rattled by Dubai default impact

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Dubai Jitters: Will bears overtake investor confidence now? ALSO READ See what other CNBC-TV18 anchors have to say Nifty BSE | NSE 30/05/12 Are Mutual Funds betting on Nifty?

Q: It's a money bags market. In that sense is there any concern about money flows, liquidity, how available it will be?

A: That influence got tempered a bit when crude fell off from USD 150-140 per barrel to USD 60-70 per barrel. So the importance of the petro/dollar equation in driving asset prices across the world has waned quite considerably. If one had asked the same question in end of 2007 or early 2008, maybe the situation would have been different. Could there be some knock-on effects because of the liquidity, which flows from Dubai to the neighboring markets? There could be a little bit and these are technical issues but I don't think that's such big issue that would drive down asset prices significantly.

Q: We do have connections with West Asia generally by way of infrastructure or money or people?

A: No that's an important thing. Then you have to go down to the company level and see who is doing what kind of work in Dubai. Yes, infrastructure companies do have exposures - Larsen and Toubro (L&T) does, Voltas does, maybe Nagarjuna Constructions does. They have significant projects running in Dubai and to that extent - how safe are those projects in term of receivables those will come through in time to these companies in India is something that needs to be monitored and checked with managements.

The one thing to understand is that while one large Dubai institution, state-backed too, is on the brink of default, it's not like Dubai has become a complete bogus destination where any work that you are doing has no value and no money will come through. That is an extreme worst case scenario that you can paint today.

So I think that would be very premature. While there might be a sentimental knockdown and should be for stocks like Voltas and maybe for some extent L&T because of the exposure to Dubai-based infrastructure projects, I think to say you write-down those entire value of projects because no money would come from Dubai now, is an extreme over reaction.

So this morning you might see some sentiment and then you want to check with those managements on how much the exposure is and how safe the money is there. How much of hit they believe would come down and then try and discount that risk into the stock prices rather than work for any kind of knee-jerk fashion. But there is exposure from Indian companies and listed companies too. We need to monitor and check with those managements shortly.

Q: What happened yesterday with the Nifty - is there a worry now that there are signs of exhaustion - this 5,100 and then for whatever reason getting yanked back again?

A: This problem a lot of people have been highlighting that you are going there and you are not taking it out. When you do that repeatedly - that dreaded word 'distribution' comes to mind. You can never spot distribution on the screen but sometimes when the markets keep repeatedly going on to an intermediate high and then is not unable to take out and then drifts down for whatever reason - then you tend to worry that the smart guys are distributing stock at those 5,000 plus kind of levels. Today is an interesting test for the Nifty, we have gone to that 4,900-ish kind of mark a couple of times and we found support there. That is truly the first leg of support. So if our market believe that Dubai is not the trigger for the big correction and it's a temporary sentiment knee-jerk, then you will find today that 4,900 Nifty may not be violated and at some point with an attempt to come back.

On the contrary, if you believe that this is the trigger for a long awaited global correction, which doesn't end at 100-200 points on the Nifty, then Nifty will not be able to correct a whole 4,900 and at some point you will come back in the second half of the day and see selling once again. It could well be a buying opportunity for short traders but I suspect the Nifty will probably spend the day between 4,900 and 5,000 and then wait to see how the other global markets are reacting on Monday when all of them open up beyond this long weekend.

Q: Just on stepping into December - one interesting point people are making is that a lot of investors are ready to call it quits for the rest of the year. They don't want to necessarily play this game in up in December. This could change the equation?

A: A part of that has already happened. When you make a lot of money and you have been riding a lot of profits especially because last year things got jerked around a bit. So people want to protect a lot of their profits and that trade is very much on and a lot of people are doing it. They don't want to take very large bits it makes them more cautious about reserving profits for the end of the year - you could have a little bit of year-end selling as well. But fingers crossed - let's wait till Monday or Tuesday and see where the global winds are going and whether after the fall that Europe has seen yesterday things stabilize later this afternoon.