Market indecisive, see Nifty in 5000-5400 range: Experts

The Reserve Bank of India (RBI) in its April-June quarter monetary policy on Tuesday left the key policy rate unchanged. However, it cut the statutory liquidity ratio (SLR) to 23% from 24% earlier.

But the policy had little effect on the market. The Nifty recovered in mid trade to take hold of the 5,200 level. The Sensex rose 92.50 points to close at 17,236.18 and the Nifty gained 29.20 points and ended at 5,229. In an interview to CNBC-TV, UR Bhat, managing director of Dalton Capital Advisors says, he sees the Nifty in 5,000-5,400 range. "If there is an LTRO III or something like that, I think 5,400 is a possibility. But if there is a disappointment on the LTRO front or on the QE3 front, I think 5,000 might be at risk," he adds. Meanwhile, Sudarshan Sukhani, s2analytics.com says, the market is not giving a clear direction. “It is making lower highs, it is not exactly bullish,” he adds. Below is the edited transcript of UR Bhat's interview on CNBC-TV18. Q: What has your reaction been to the no policy this time? How do you think the market would move from here? A: As far as the policy is concerned, the RBI has virtually lobbed the ball back to the court of the government, saying that ‘whatever monetary action could be taken, has already been taken, infact front loaded in April itself, now nothing much can be done from our side, it’s your time and you have to do whatever it takes to control inflation, accelerate growth.’ So, that’s what they have said. The cut in SLR is not a very big event because the SLR holding of the banking system is higher than the 24-25% that was there. But the fact is that just because banks were not able to lend money, they are keeping in SLR security. So, therefore, as long as there is not really much of growth and better demand for credit, it is unlikely that this cut in SLR will translate itself into reduced interest rates or more money being available for funding corporate expansion plans. Q: Where does the market go from here? In the last couple of days, we have seen a lot of money coming in from the global guys. Do you think the ECB will deliver on that promise? A: There is a widespread expectation though. Germany, France and the ECB president have said that they will do whatever it takes to keep the Euro in place. So, therefore, that is extrapolated to say that there is one more LTRO in offing. I don’t know whether it is as simple as that, but I think the expectations are ruling very high. That is why money has already started coming into the Indian market. Even in the US, there is a similar expectation, sometime over the next few weeks, that there will be a one last hurrah of a QE3 or a something like that. I think these are the expectations that are being built up. I feel that there is an election coming in the US, so it is likely that they will do whatever it takes to ensure that the consumer sentiment gets better. Even in the Europe, with those statements, I think there is some amount of stability that we are seeing in the Italian and Spanish bond market. So, I think there is a lot of expectation. So, there is always a risk that when the expectations run much higher than what could potentially happen. There is always a risk that there will be correction, if the expected event doesn’t happen. That risk is still there. But to think of a potential LTRO III very soon is asking for a bit too much. _PAGEBREAK_ Q: News reports are suggesting P Chidambaram may become the next finance minister. How important is it from the market’s point of view? A: It is only after the Budget that the market has become very nervous. Till then, the market was quite bullish. So, one needs to revisit what happened after the Budget for the market to really take a dim view about India. So, therefore, do whatever is required to take corrective action. A fresh pair of eyes will always help this. So, to that extent, it’s a welcome development, if that is true. Hopefully, we will see some more action coming from Delhi. Q: What's the range for the market from now? We went very close to 5,000 and bounced back from there. Is it 5,000-5,400 or a smaller range that you are working with? A: If there is an LTRO III or something like that, I think 5,400 is a possibility. But if there is a disappointment on the LTRO front or on the QE3 front, I think 5,000 might be at risk. So that is the range that we should be working on. Q: Do you still maintain a defensive portfolio in such an environment or would you want to sort of latch on to some of these rate sensitives, if you do expect there to be some reforms in the market to go to 5,400 mark? A: It’s going to be the private sector banks which have got the SLR at the barest minimum. So, therefore, they are the ones who will probably have some release of funds for lending to corporates and to generally the economy. So, therefore, I think these are the companies which can probably do a bit better because the incremental earnings would be slightly better on account of this release of 1% SLR. But, in the case of the public sector banks, most of them already have excess SLR. So, therefore, it may not matter all that much. But I think one needs to be some more defensive because we have been disappointed many times, since the Budget, about various statements coming out of Delhi saying that they are around verge of doing something big, nothing has happened. So, therefore, once bitten twice shy, one has to be circumspect about this. But, at the same time, one cannot miss out on the big opportunity, if something really big comes out of Delhi. Q: What is your understanding of the kind of money which is coming in? In the last two days, we have got nearly a couple of thousand crore. July was pretty good. Are these tactical investors who are playing for a risk on because of the European situation or is it a different breed of investors who are getting in this money? A: I think they must be largely tactical ETF sort of funds because they are the ones who want to play these small and decisive moves. But I don’t know whether it is the long-term investor who has really taken a different view about India because there is no incremental change that has come about over the last month or so. Therefore, long-term investors or those investors who are old timers, as far as India market is concerned, there is no reason for them to change the view about India. There is no indication that things are going to change and there is some movement forward, as far as policy action or conquering inflation or current account deficit are concerned. So, therefore, there is no reason why someone should really take a long-term view immediately and come into India in a big way. So, it must be basically ETF sort of money that is coming and taking a tactical view about potential changes that could happen in the short run. _PAGEBREAK_ Q: What is your view on the pharmaceutical space? Given the circumstances that we are dealing with, there is quite a bit of traction in defensives like this. Would you still be positive on these names? A: Given the sort of uncertainties that are there in the market, I think the pharma companies have attracted most investment. They have done very well. Both these sectors are probably now looking more like the IT sector of 1,999, valuationwise. So, I think there is a limit upto which people will keep buying into these and keep hiding in these sort of stocks for a lack of better alternatives or for the fear that there might be a sudden correction in the market. But given some movement on the policy front, given some movement in Europe or in the US, I think people will start betting on those sectors, which have been beaten down and probably get out these sectors. So, therefore, while it is a good policy when there is maximum uncertainty to be invested in such sectors, but if you foresee any change in terms of policy action, I think you are better of probably looking into other sectors, which have been beaten down.