FIIs pushed Nifty below 5600; buy IT, pharma: Dipan Mehta

Dipan Mehta, member, BSE & NSE believes foreign institutional investors (FIIs) are responsible for pulling the Nifty below the psychological 5,600 level

Given the economic and political uncertainty in the country, he recommends investors to park funds in defensives like IT or pharma. Also read: Nifty stocks that are trading below 200 DMA

"Investors should get away from midcap, large cap and focus more on defensives and interest rate sensitive cyclicals. Look at export oriented companies where there is benefit of the rupee depreciation also," he told CNBC-TV18. Below is the edited transcript of Mehta's interview to CNBC-TV18. Q: Would you attribute this rather deep cut that is coming in over the past one and half days to the Foreign Institutional Investor (FII) numbers? A: Yes. We had a negative FII number yesterday after a long period of time. The same pattern seems to be reemerging today as well. The timing of the selling, that is as soon as the European markets opened, confirms that this is concentrated selling coming through from the FIIs. Q: We are not falling synchronously with the other global markets. We have been kind of selected for some extra punishment. A: That is right. The problems are more internal in nature. We are clearly not doing enough to solve the macro economic problems. And now, we have to deal with fresh political uncertainty which means that taking tough decisions will become all the more difficult. So, it seems that we are in for tough a period for the next four-five months atleast till there is some clarity on what politically is feasible. Q: For the last two days, we have seen the trend that as soon as the European markets open, even if they are doing well, we start to see quite a bit of fall. Infact in today’s trade most of the Asia was on leave. So, are you getting a sense that quite a bit of selling is actually come in from the European fund managers? We have been hearing about Exchange Traded Fund (ETF) selling, have you got any evidence on which part of the globe actually this selling is originating from? A: I wouldn’t like to hazard a guess. However, from what we gather from the media, ETF buying was responsible for the stock markets rallying in 2012. That time also, we were asking who is actually buying and what the source of funds was. So, we assume that this is also the same buyers who are turning sellers. Q: Last week because midcaps fell quite a bit we started to see a bit of an outperformance that lasted for an entire two days and now we are back to square one for some of these midcaps. What would be your advice, mouth watering valuations or would you say just falling knives stay away? A: Investors should get away from these midcap, large cap and focus more on defensives and interest rate sensitive cyclicals. There are midcap stocks within the defensive sectors like pharma, IT which will continue to do well and which have been doing well. So, clearly the preference has to be to shift to more defensive sectors which are not dependent too much on domestic consumption or on capex cycles or interest sensitive sectors and focus more on the export oriented companies where you have the benefit of the rupee depreciation also. So far, we have not seen much at least not in March quarter or at some part of time one should expect the rupee to crack while the market continues to trade lower and lower as we have seen today.