Sampriti Cap sees mkt improving; stiff resistance at 5600

Sandeep Shah, CEO of Sampriti Capital says global worries have eased post European Central Bank (ECB)'s promise of additional liquidity. ECB head Mario Draghi announced the ECB "may undertake outright open market operations of a size adequate to reach its objective" to drive down soaring borrowing costs.

However, markets wanted more from Draghi after he raised expectations to fever pitch with a vow last week to do "whatever it takes" to preserve the embattled single currency. Nevertheless, Shah feels the macro worries have been factored in, and going forward, market may see slight improvement this year. However, he is not so positive when it comes to reforms.
Meanwhile, Reliance Industries led the rally in benchmark indices on Monday following reports that the energy conglomerate has agreed to share its KG-D6 accounts with the Comptroller and Auditor General. RIL shares soared 5.7% to Rs 785.30, the biggest percentage jump in a day in three years, on hopes the move would speed up approvals for various proposals in four blocks, including KG-D6.
Shah believes that even a 10% upmove from the lows was justified for the "undervalued" RIL stock. "I think RIL may move higher if issues with the government on the E&P front are resolved," he said told CNBC-TV18.
In terms of market action, Shah sees Nifty facing stiff resistance at 5,600.   Below is the edited transcript of his interview.
  Q: Do you see a lot of upside to the market in the near-term as we get into August and September?

A: The markets at both the local and global level are at a make or break situation. The current news flow suggests that we are in a make situation. Globally, the Italian and Spanish economies are at risk and the bond yields have spiked to fairly dangerous levels.
 
The ECB commend that they will buy bonds without sterilizing them will give a lot of confidence to the markets. At this stage, it seems that the Germans have agreed with the plan. If things get worse than the liquidity barrage will unleash itself.
 
Locally, despite some negative news like not lowering of CPI , slipping growth, RBI’s reluctance to cut interest rates, spectre of a drought that investments continue to fall and tapering consumer demand the markets have held the downside target of 5,000-5,200 levels.
 
Compared to last year, we have lower interest rates, lower CAD at 3.2% from 4.2%, last year we witnessed worst decline in earnings. Having a new reformist FM, who is pushing the parcel in quick time, is all positive for the market. However, I am not sure of a diesel price hike or some other measures.
 
It is important that the government acts in next six months between session of the Parliament or possible Assembly elections. From this prospective, the our short-term upside target is 5,400-5,600 levels. If we have a combination of good monsoon, global liquidity, government action, more FDI in the country, internal company investments then the Nifty can open up to 5,800-6,000 levels.
  Q: If these factors do play in our favor than do you think that investors will have time on their sides or do you think there will be a sharp up move leaving not too much time for accumulation?
 
A: In the last two months, the market had an upward trajectory but the inclination is slow. The economy and growth is slowing down and getting big reforms is unlikely.  
 
The ECB will only act when the problem shoots up. In this environment the market looks to be headed for a slow and gradual incline upwards unless the government delivers some consensus on multi-brand retail or GST going through. Still,  there is a fair amount of pessimism and skepticism in the market.
  Q: After looking at Cognizant guidance that they maintain do you think that companies like Cognizant and TCS could continue to deliver volume growth despite tepid looking environment?
 
A: TCS guided that they will grow in line or faster than Nasscom whereas Cognizant gave a more robust guidance as they have been in the past. Cognizant is a better price warrior than TCS. The margins of TCS are in line with Infosys.  So they have the flexibility to grow their volumes. In the first quarter TCS took a 1% cut in the overall realization. At the current level TCS is not a cheap buy. TCS has created a solid business model and have demonstrated growth across all verticals.  TCS is a good stock to accumulate foe long-term.
  Q Earlier, people were very apprehensive of buying stocks, because they thought there was a big market meltdown risk which would drag down however good quality name they were buying. Would you say now that fear stands reduced that the market risk to whatever you are buying is no less than maybe ballpark 5000 Nifty?
 
A: Yes. But at this point we are making some assumptions like the eurozone will not collapse. No bad news of a possible legislative or administrative grid locks. The worst is behind us. In the current scenario Nifty at 5,000 looks a worst case scenario.
 
The next six months are crucial to see how the government works out its action. On short term, for the Nifty the base is 5,000 and it makes sense to buy stocks. It is better to buy stock of companies with defensive earnings, cash flow, consumer side company. But yes, the fear panic scenario is behind us. From that prospective the investors can buy in a smaller downside and than look at the upside.
Q: Hypothetically, if we do get 5800- 6000 figure on the Nifty, which are the Nifty stocks that you think would assume leadership now?
 
A: The first halt remains 5400 to 5600. If we get good monsoon and some government policy action then we can get to 5800 to 6000 levels. Strong government measures like FII, local and foreign company investment in the country are required to revive the economy and move beyond 5600 level. We need a strong push from infrastructure and capital goods side to move to 5,800-6,000.