Market is fretting over Sharad Pawar, Praful Patel: Expert

The market has been grappling with both domestic and global worries. It has not shown much of a momentum throughout the week due to lack of key triggers.

Amidst all this, reports about resignation of agricultural minister Sharad Pawar and heavy industries minister Praful Patel from the cabinet is adding to market’s tensions, said Girish Nadkarni, executive director & head - equity capital markets, Avendus Capital. "Negative political developments will cause the markets to come off a little," he added. He expects the market to be capped on the downside unless there are significant political developments in terms of key reforms taking place. "The markets may go down and be volatile because of political development, but unless they are extremely serious, the markets should not see more than a 5-6% downside from here," he elaborated. Meanwhile, technical analyst Sudarshan Sukhani, s2analytics.com sees Nifty stuck in a narrow range and its direction being unclear. "The Nifty’s drift below 5,220 was the first sign that there is weakness but not enough to justify taking short positions," he said in an interview to CNBC-TV18. A buying opportunity would emerge only if Nifty breaches 5,260-5,270, however, levels on the downside still remain uncertain, Sukhani added. Below is the edited transcript of Nadkarni’s interview with CNBC-TV18. Q: What have you made of the results season so far and next week it’s going to be heavy, we have the likes of L&T, etc on Monday. How have you approached earnings season? A: In the initial part of the earnings season most companies that have come up baring Infosys have declared numbers which are either ahead of expectations and they are generally better performers. It remains to be seen how the rest of the market stacks up in the coming weeks. But, by and large in this quarter the numbers should not be significantly below expectations. The current quarter is where the pain will be, so you will see some of the pain in the next quarter numbers. Q: Do you think the market is worried about the political development with Sharad Pawar and Praful Patel resigning from the cabinet? A: I would think so. This is a new development. It was being talked about for the last few days, but this is something new. People were expecting a whole host of reforms, there were hints of some of those reforms in the last few days and post the presidential elections the market is certainly expecting a whole host of reforms. Negative political developments will cause the markets to come off a little. Q: When you say come off a little what are you expecting to see through the course of the next couple of months. Would you think we will continue to be in that range or is there chance that we could break the lower end of our range of about 5,100 or so? A: Unless there is a significant political development, which means fresh elections being held or some such drastic things, which doesn’t seem likely, the market will be capped on the downside. The valuations are in the fair range right now. There are expectations going forward that a several set of reforms will come in. _PAGEBREAK_ Primarily, amongst them is the diesel price hike, which will then set the pace for other set of reforms. While we are expecting this in the next 3-5 months, these will kind of provide a downside cushion to the market. So, the markets may go down and be volatile because of political development, but unless they are extremely serious I think the markets should not see more than a 5-6% downside from here. Q:  Given your conversation with market people do you think the political developments could get serious or do you think it will be nipped in the bud? A: Very difficult to kind of decide on and say anything about the political developments, but let’s hope that these things the ramifications are not serious. Q: How would you approach the private sector banks because in the results that have come out so far be it Kotak or even Axis there is some signs of stress in asset quality that’s visible? Would you be concerned about this pocket or do you think the premium valuations will continue? A: There is no doubt about the fact that there is stress as far as the Indian industry is concerned. Markets are conscious of that fact. There is an expectation across banks and more particularly in the public sector banks that NPAs will increase. However, in this quarter specifically, we will see a lot of restructuring of loans. There will be some stress which will be seen as seen in the case of Axis and Kotak Bank. But I don’t think this quarter numbers of both public and private sector banks will show a serious change with respect to NPAs although there is the overhang of NPAs worsening from now on. In this quarter, by and large banks should be able to scrap through. Q: What would your expectation be of how capital goods stories would move from hereon, the likes of a BHEL or an L&T? A: Capital goods will take still some more time to kind of come back into the reckoning. You will have to see a significant drop in interest rates. You will have to see a revival of the investment cycle and therefore capital goods should be the last to recover. Having said that, the recent developments with respect to the restructuring of SEB loans is positive for the power sector as a whole. Therefore, if there is action plus the imposition of import duties some of the equipment also augers well for some of these companies. So, a series of such steps should mean that the capital goods industry should do well, but it would be the last to kind of recover from the downturn right now.