Listless mkt: IIFL Cap foresees few triggers in 3-6 months

Lack of clarity on various domestic and global issues has pushed the market in a narrow trading range, feels Deepesh Pandey, head - investments IIFL Capital. But, he is hopeful that some triggers might emerge in the next three-six months would direct the future course of market.

"There should be some triggers emerging in terms of interest rates, clarity on Europe situation, rainfall and some reforms,” he said in an interview to CNBC-TV18. Meanwhile, Sudarshan Sukhani of s2analytics.com believes that the broad overall trend from the market is up. So, he suggests that one can take some long positions in the Nifty and in the Bank Nifty both of them. "We would prefer to be on the side of the trend especially when the intraday trend is also favouring a long position atleast for a couple of days," he added. On the macro front, Pandey believes that inflation is still sticky and above the Reserve Bank of India’s comfort level, so he expects the central bank to maintain a status quo in terms to a rate cut. Given the market condition and aggressive disinvestment targets he is skeptical if the government would be able to meet fiscal deficit target this year. Below is the edited transcript of Pandey’s interview with CNBC-TV18. Also watch the accompanying video. Q: It has been so listless for the market, range bound, nothing really to talk about but in your sense do you think this is just the lull before the storm? A: Right now the market is facing lot of uncertainties both on domestic front and global front, which is what is keeping it narrow range bound. Hopefully, there should be some triggers emerging over next 3-6 months in terms of interest rates, clarity on Europe situation, rainfall situation in India and possibly some reforms and that will set a direction for the market. In the very short term triggers are missing, there are lots of uncertainties, so the market is in a narrow range. Q: The CPI data for the month of June was at 10.02%. How exactly would you read the inflation data till now including CPI, hence how would you extrapolate what the RBI could do on July 31st? A: Inflation data still remains quite sticky, quite high, beyond Central Banks comfort. Diesel prices still haven’t gone up so there is some bit of suppressed inflation because of that. There are clear indicators that inflation remains the top priority of the Central Bank. Food prices have run up because of poor rainfall in India and what's happening in US in terms of draught situation.So, that will also show up some impact. Possibly, we will have a status quo this month in terms of rate cuts. Next six months there could be some rate cuts if inflation softens. Crude prices have again bounced back in last few days, so that takes away one possible trigger for downward in inflation. So, one should be cautious in terms of expecting any rate hikes in very short term. Q: How would you position your portfolio to handle something like the monsoon deficiency? Would you stay away from some of these rural focus companies, may be FMCG, do you expect consumer demand to slowdown from here? A: We are yet to get an answer on the impact of monsoon and the total rainfall. By month end we will have a better picture. Rainfall has improved. Last two years food gain production has been very strong. So the impact of bad monsoon on rural incomes and food grain supply should be limited to that extent especially with the recent increase in minimum support prices (MSPs). Rural incomes are also slowing fundamentally because rural demand has been slowing. It has been very strong over last 2-3 years and we are seeing some moderation over there. So that may not be necessarily linked to monsoon progress. _PAGEBREAK_ Sector wise, rural plays like tractors, two-wheelers can be more directly impacted. Consumer companies are not indicating any kind of slowdown. That is one segment which would still keep on going well. Q: What is your view on the rupee or the currency and what sort of impact could we see in terms of earnings with regards to the depreciation that we have been working with on the rupee? A: Outlook on currency is getting more and more positive because we have seen sharp fall in gold and silver imports. We have also seen drop in crude prices. Therefore, the overall trade deficit and current account deficit number should trend downwards. Looking at the way currency has depreciated that should also boost exports, though overall global macro scenario is weak right now. Net-net having seen such a sharp fall over last one year and looking at inflation adjusted currency, the fair value should be between 50-52/USD. That’s where one would expect it over 6-12 months. In terms of sectors clearly IT emerges a big beneficiary. Consumer durables where import intensity is high those sectors will suffer. Q: How hopeful would you be on the fiscal deficit target for the government and whether they can adhere to the divestment target which they have laid out for FY13? A: Right now it looks difficult clearly in terms of disinvestment targets which are still very aggressive and market conditions are not at all good. There is hesitation about investing in government owned companies because of repeated policy changes and interference in terms of companies’ policies. Beyond disinvestment, subsidy reduction itself is quite a huge task considering the delay in price hikes. One is expecting a diesel price hike immediately after the presidential elections and that’s very crucial. You need bit of luck and bit of support from crude oil prices. You need some price hikes, more conducive market conditions for disinvestment targets to be met. Tax collections will disappoint versus  expectations. It is a very tough target ahead. Most of the market participants at least are building in a slippage in fiscal deficit looking at the current trend. Q: You were talking about two wheelers and you were telling us about the weakness in that space. You would not want to keep any of those two wheeler stocks in your portfolio because Bajaj Auto reported its numbers today and by what the management has said the worst seems to be over for them? A: Two wheeler stock prices have kind of underperformed. Bajaj Auto stock has fallen a lot. Volumes numbers have been quite poor and specifically for Bajaj Auto there are issues about exports. There could be more negative surprises over next three to six months in terms of earnings, margins and volume growth I would still stay on the sideline and wait for all the earning disappointments to get discounted in the stock price and then look at adding these two stocks. Q: What about banks? We have heard from a couple of banks it’s been a bit of a mixed bag, Axis bank was down post its numbers, post asset quality concerns yesterday. How would you be placed on the banking space and in terms of asset allocation how much would you possibly recommend? A: Banks have two distinct segments. Private sector banks are doing extremely well. While credit growth is slower, asset quality performance has been extremely impressive. Banks which are focused on retail credits especially HDFC Bank and IndusInd Bank have shown very strong growth in that segment. One strategy is to be quite overweight on private sector banks because asset quality performance is very good over there. in government owned banks there are issues in terms of asset quality, slippages, restructuring etc. I’ll be much more selective, I would still buy 1-2 names over there because valuations are looking very attractive in that segment. Most of the stocks are quoting below book value. Some of them offer very good dividend yields. So over next 3-6 months I would accumulate 1-2 government owned banks. I would be quite overweight on private sector names because they keep on delivering well in any kind of environment.