Mkt unlikely to maintain momentum, inflation to be spoiler

It's been a lacklustre but steady session on D-street. Global cues added weight in late trade giving the market an edge. The Nifty closed up with a 27 point gain at 5,347. The Sensex walked home with 75 points to end at 17633.45.

Sudarshan Sukhani of s2analytics.com feels that today's refusal to go below 5300 indicates that at least there is some resilience in the market and advises to take some long positions.
Meanwhile, market analyst Ambareesh Baliga says that July inflation data expected tomorrow is unlikely to be that important. "The focus is on the way crude has started moving in the past couple of weeks as to how inflation will play out in September-October-November onwards. That is more concerning than the immediate inflation figures," he warns.
However, at the same time, Baliga continues that there may be a knee-jerk reaction because we have liquidity flowing into the market, so possibly there could be some bump up. He is also concerned that to maintain those higher levels is going to be difficult for the market the way things are Here is an edited transcript. Q: It’s been pretty calm and collected for our market and a bit of an outperformance as compared to our European peers. What sort of positions are you advocating? Sukhani: The markets is in a narrow range. We have to also consider that this narrow range has developed after a very decent rally. Normally whatever happens inside the range will eventually be resolved on the side of the previous trend. Which means if we were in an uptrend there is this fair chance that we will breakout on the upside.
Today's refusal to go below 5300 tells us that at least there is some resilience in the market. The view now is that some long positions should be taken. Q: Last week there were hopes after the comments that the Finance Minister made on reforms coming through. Are you expecting anything any time soon? Baliga: Nothing soon. When Manmohan Singh took over the portfolio nothing really happened. We waited for the presidential elections still nothing happened. Now with the new FM making that statement, the market was given some breathing space or time.
However, I doubt whether he will have anything substantial looking at the political scenario fabric right now, I doubt whether he can really act very much. Except for GAAR where he could possibly dilute to a certain extent. Other than that I don’t really expect any big bang announcements even something like diesel price hike.
If he is not able to put through in spite of the record losses which the oil marketing companies OMCs have shown, I think its quite difficult for him to really put through any of those big plans which he has announced as such. Q: Inflation data is expected tomorrow. How optimistic would you possibly be on a lower number for inflation and what we can expect? Baliga: I don’t think tomorrow’s inflation number will be that important because people have been looking at possibly the next couple of months especially because of monsoons. Crucial factor is the way crude has started moving in the past couple of weeks as to how inflation will play out in September-October-November onwards. That is more concerning than the immediate inflation figures.
I think because of that in case these numbers are lower than what people are expecting. I suppose there will be a knee-jerk reaction because we have liquidity flowing into the market, so possibly we could see some bump up. But to maintain those higher levels is going to be difficult for the markets the way things are.
_PAGEBREAK_ Q: SBI chairman mentioned in an interview that the slippages may not be as high as it was this time around. He also said that the macro situation, supply bottlenecks will keep atleast the asset quality pressures will continue for a while. Is this a space that you would be very skeptical about now and how would you approach something like an SBI? Baliga: This is what I have been saying for a while especially the last month or so that it is possibly time to move out of the PSU banking space and move into private sector, incase you want to remain in banking. But again looking at the economy, the way the situation is clearly you will have the NPAs moving up unless ofcourse we are able to kick-start the economy which I think is a bit difficult given the situation and the more we delay it is going to be more difficult going ahead. I am not that optimistic as of now.
I would tend to stay away from the banking sector atleast for a while. Looking at the impending elections in 2014 or possibly earlier I really don’t know whether there could be another like farm loan waiver, in case that comes I think that will be another negative for the sector. Q: Have you heard anything happening with regards to the UB Group, because all a sudden the stock is up and active today? Baliga: I think other than the results of some of these companies possibly except Mangalore Chemicals or Kingfisher Airlines, clearly there is an expectation that sell off could happen sooner than later, possibly in next couple of weeks. So that is what is taking these stocks up especially United Spirits.
_PAGEBREAK_ Q: If one does believe that the undertone of this market is bullish. There is another leg of an upmove to go if you wanted to reduce your defensive overweight and get a little more cyclical in this market maybe some of the rate sensitives. Which stocks would you pick up from the heavyweights? Baliga: Clearly if the market has to move up from here it would be based on the policy action flowing out and because of that it will be the cap goods space which will in fact move up. I would surely look at stocks like L&T and BHEL on the way up. Still, I would say I am a bit cautious at this point of time. So, instead of buying anything further in case the markes sees those levels of 5400 plus I would be selling than buying right now. Q: What about DLF? Do you have a view with regards to that impending deal that they have with Lodha on the Lower Parel property which is worth around Rs 2700 crore? Do you think it is going to change things around for the company? Baliga: The sentiment will surely be improved a bit as far as DLF is concerned but I think it’s already there in the price. I don’t see it moving too much move from here possibly to levels of Rs 225 -230. This is because the pay off profit they will be earning from this deal will be about Rs 500-600 crore. Rest of it is the expenses which they have already incurred in developing that property. As well as the interest payments which they made which I am not too sure whether it’s written off or whether it’s carried forward in the balance sheet. Q: There are repots or source based information doing the rounds that the divestment agenda could actually get quite aggressive and that we could do around Rs 15000 crore by December. Would you be that optimistic with regards to divestment and do you think that there is appetite to lap it up? Baliga: Appetite again depends on the pricing because in case again they are looking at a premium to the market price of the listed securities I think it’s next to impossible to do divestment. It will meet the same fate which they had met last time and you will have to have LIC and others coming to rescue which I don’t think is possible again.
So, clearly I think it will depend on pricing but at the same time I think if they are doing it for sale I believe that they will be selling it too cheap at distressed valuations. I think stocks like Coal India, Oil India could be divested at these levels. I think they will get good valuations but like rest of the companies I think its better that they wait for a while. Q: On the upside what sort of range do you think we are working on the Nifty? Baliga: Quite difficult to give a range, like I said liquidity is pushing it up and any sort of levels is possible if liquidity gushes in. I think the most important question is what you would do if the market moves up. I surely did not expect looking at the fundamentals of the market that the market can really move too much beyond 5200 levels, this itself has been surprising for me.
In case I see levels of 5400 plus I will keep booking out and in case levels of 5500-5600 I will actually be in cash to the extent of 30-35% of my portfolio unless you have policy actions coming out. In case that happens I will change my view otherwise I will keep booking out.