Crazy gold slide a worry, mkt can fall 50-100 pts: Advani

Pashupati Advani, analyst at NBIE discuss the outlook of Indian equities market in the face of falling gold prices and its impact on investor sentiment.

Below is the verbatim transcript of Advani's interview to CNBC-TV18.

Q: How do you think it is going to move for the market? We have already lost quite a bit of ground in the last few weeks. Do you think there is more pressure from what you see?
A: The way commodities have fallen off, I think that will have a temporary shock in the whole system. However, I think it also provides a great buying opportunity. So, let us see what happens. Q: What kind of a range are you seeing for the markets at current levels?
A: Because of this temporary hiccup, it may go down maybe 50-100 points but the real issue is outside the equity markets. It is probably in the commodity markets and you have got issues like gold and silver having gone down a lot, oil also. Oil going down is very good for India, it is good for our markets and for our deficits. But gold at USD 1,350 per ounce approximately is quite crazy because a month ago it was around USD 1,600 per ounce.

Q: Do you think the 5500 level for the market could provide to be a base because of the improvement that we are seeing in the macro situation? Inflation has now slipped to a 40-month low. How much of a respite do you think that would provide for equities?
A: It would be nice to say that it should provide an immediate respite. The problem that is that there are all these various things happening in the world and if one is a macro hedge fund, maybe this is the time to look at buying oil and gold rather than going into Indian equities.
We are competing against other asset classes which is not fair, but that is the way life is. That is going to make the market go down before it will go up. I do not think it is a situation where we need to panic, but it is a situation where strong money is going to win. It is the time when you separate the men from the boys. Q: Have you already heard of any margin pressure building up either in terms of people having to liquidate equity positions to make up for the losses on commodities or in terms of pressures coming through from the ETFs or for the ETFs that have been investing in our market?
A: I would assume that those pressures are going to come. Hopefully, the main markets are insulated from any kind of shocks, but there is going to be pain in the system. I do not think the pain is going to just disappear like that.
_PAGEBREAK_

 Despite the fact that the exchanges, trading systems are protected and are strong, ultimately loss has to be borne, obviously people are not expecting to produce 10 or 15 percent of their position in a day but they are supposed to. That shock is still going to be in the system for a few days. Q: How do you trade the market in that context? Is it still looking like an opportunity to short this market which has been underperforming since all the way back from January? Or do you think now there is some kind of closure happening at least technically and the market could be primed for a bounce post this correction?
A: With oil prices coming down, the Oil Marketing Companies (OMC) look interesting and they benefit, that is India Inc. benefits. One actually has to do some research and see what the effect of that is. As Brent and the West Texas Intermediate (WTI) are down, this bodes well for all our OMCs which are waiting for a subsidy. Lower oil prices means they do not need as much subsidy to do that.
Even a Re 1 drop in petrol prices helps. There are always going to be opportunities. Our market is a market where we are stock specific, industry specific. We expected Infosys to go down, but at this level, it is an attractive stock to be looked at. Infosys is attractive, as is Tata Consultancy Services (TCS) also. Q: How do you approach the only pocket that has helped the market up until now or atleast in the last couple of days- banks? Do you buy banks or do you go into playing some of the high-beta games?
A: The issue with banks is that if there are margin calls, it means that the ultimate pain comes on the Non-Banking Financial Companies (NBFC) and the banks. So, there is going to be some pressure on them. After this 5 to 10 day period is over, it should be looked at and perhaps rebought. News reports say that ICICI was actually auctioning some physical gold in some of their branches. That pain has to come out of the system and it is not out yet.

Q: What are the expectations from Reliance Industries today?
A: The entire Reliance pack, not only industries but even the other group has actually been doing well over the last few days. They have probably been one of the reasons why the market is held. Obviously the chairman of BP and Mukesh are going to the power corridors hence we are probably going to have some kind of a good announcement and I am hoping for it.

 

Q: In general is there anything that you would buy at this juncture in the market, because there are stocks that are sitting at multi-year lows, the entire metal pack as well is bleeding quite a bit. Are there any buy recommendations at this point or is it just a wait and watch mode until the global have a place out?

A: If you are a long-term investor in India, it is a time to start looking at buying. One could say that I would buy a technology stock simply because they have all got hammered and they are not going out of business. They are just having some adjustment to their business model. OMCs look interesting at this level. There have been some companies that have done offers for sale (OFS). Those prices are lower than the OFS, so they all merit looking at certainly, because they have very high promoter holdings. You can pick and choose and this is the time to actually get ones money out and buy stocks like those.

Q: Whichever way you cut it, the only thing that has been saving this market is the kind of liquidity support that we get. Anecdotally, what do you hear about that? The last few days have not been inspiring. There have been consistent outflows from the cash market for the Foreign Institutional Investors (FII).
A: When you have a choice of investing in multi-markets and multi-classes of assets, you are definitely going to look at other markets. There has been a lot of things happening in Japan and people have gone into the Japanese market looking at it being exciting. Likewise, there has been good news coming out of the US, so a lot of people are pulling back and certainly those markets have more depth than ours. That is one of the things that is taking money out of the market. What has gone out compared to what has come in is really insignificant. Though it may hurt our market and push our market down, it is really small numbers compared to what we have had year-to-date (YTD) and I think we should be aware of that.