Expect Nifty to hit 5700-5800 sometime this year: Ambit Cap

Global markets were closing watching the Federal Reserve's meeting and were anticipating a big liquidity boost. The Fed however, said that it was extending its Operation Twist program by buying USD 267 billion in longer-dated securities by the end of 2012.

Andrew Holland, chief executive officer - equities, Ambit Capital feels that operation twist extension will not serve the purpose of aiding the US economy.

"The ongoing operations will have a margin effect as well. In fact the Fed downgraded forecast for the year quite significantly. I don't think markets are going to take that too well," he said in an interview to CNBC-TV18.

The next key trigger for global markets would be the outcome of the European Unit (EU) Summit. Holland is hopeful of the EU obliging the markets with a resolution to the euro zone debt crisis.

However, if the EU summit fails to cheer the global markets like the Fed, then one would see a global sell off pushing markets to December lows.

Meanwhile, he expects Nifty to test 5,700-5,800 levels sometime in this year.

Below is the edited transcript of Holland’s interview with CNBC-TV18. Also watch the accompanying video.

Q: How would you approach markets now, would you be buying here or do you think you will get a chance to buy around the December lows again?

A: We have had kind of shot in the arm, a liquidity fix overnight and it soon starting to ware off. I mean operation twist has done nothing for the US economy and the ongoing operations will have a margin effect as well. In fact the Fed downgraded forecast for the year quite significantly. So, I don’t think markets are going to take that too well.

We are going to our next liquidity fix, which is the European meetings next week and summit. There is so much confusion unfortunately because you have so many European finance ministers saying what they want to say, within minutes markets react into positive and then negative news as Merkel says, no, we are not going to do that.

If we don’t get any kind of resolution from the European Union, the markets could test the lows of December because a global sell off will probably come. We are all hoping, we are all waiting for the liquidity fix in Europe now to keep it going with more optimism.

Q: Would you treat that correction as an opportunity to buy or is it your belief that this correction in markets so this bear patch is likely to last much longer than one expected going into next year as well?

A: For our funds we are sitting on quite a bit of cash and the reason for that is the big EU meet next week. What I would be looking for would be recapitalization banks not just in Spain, but Italy and possibly France along with some bond buying programme. I think that would be what the markets would see as being very positive, it would give them at least some respite.

That would trigger off a good rally in the short-term with liquidity being the main driver. I don’t mind buying into that, but if I am wrong and we get nothing from Europe then markets will test the politicians’ nerve and start pushing prices down again and if you get to those December lows, I am a big buyer.

So whichever way I am looking at it, I am looking at the buying trigger - I am just not saying that the European Union, I have no faith in the European Union to give me that next week, I will have to take a big call.

Q: We haven’t lost any significant amount of money at least in terms of FIIs and yet the rupee is standing below 56, how big a deal or a problem do you think the currency will be in the second half as well for a market like ours?

A: It depends on what we see - I mean hoping that we are getting stability rather than anything else. If the government as we keep hoping and praying for will do something more positive, then you could continue to see inflows. Given where oil prices and commodity prices are today, I think that is the positive for flow.

We could see the rupee strengthening into the second half of the year as we kind of get through this risk-off trade, which we are seeing at the moment. One of the indicators we look at is obviously where world commodity prices are. Unless we start to see a big run up in commodity prices ahead of that European meeting then maybe the expectations we have of European Union doing something spectacular will be off the table again.

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Q: What is your prognosis for the second half of this year, do you think the markets will continue to grind lower because of fading global growth or do you think that has been seen by the market and priced in incrementally the markets will try and seek out signs that FY13 will be better and responding to that?

A: Our view has been consistent that we will see the markets or the Nifty get to 5,700-5,800 some time this year. Getting that timing is very difficult because of the events that we are playing out now. If we see the European union buying bonds and recapitalizing banks you could get that very quickly over the summer months.

We have always been thinking about the summer rally. If that doesn’t happen, the markets test the lows of December, it is obviously a lower base, but you will get to 5,700-5,800 on Nifty sometime this year. 

Q: What is the realistic expectation from the European authorities for the next couple of weeks because one by one these events are presenting themselves to the market, market is building up expectations and then at the end they turn out to be a non-event, do you think that is likely for the European summit as well as it has often been in the past?

A: Yes, they have a good record of disappointing. Hopefully, after what has happened in Greece, there would have been some sense of purpose to try and resolve what is going on in Europe. It has got to be around recapitalizing banks bringing the bond yields down and that is what we have in terms of the expectations from the markets. We can talk about fiscal union, monetary union, but that is going to take time.

I don’t think you can bring seventeen countries together overnight at summit and just rework the whole European union, I don’t think that is where we are. But at least step towards that would help. There are so many vested interests, the French are saying let us bring bond yields down and you can see why because most of their banks obviously have huge loans into Spain and Italy. Vested interest means you are going to get desperate measures at some stage.

Q: Does it seem likely that the second half may see very disparate performances from different parts of the world or do you believe that if there is disappointment in Europe there will be a domino effect on the US markets first and then emerging markets like ours?

A: In terms of the economic outlook, you have seen that already in the US and this is why they have reduced the forecast. In China we saw that the data today and that is slowing. Economic growth will continue to be under pressure as long as these conditions remain and the economic woes of Europe continue. There is no real easy way out of that.

But we are looking at whre India is now, a few weeks ago, a few months ago, everyone was crying around the fact that your gross domestic product (GDP) growth is slowing, it is below 7% and it is going to 6%. They were saying that there is deficit, there is no corporate governance and the government is doing nothing. None of that hasn’t changed, what has changed is the oil price. It is now around just over USD 80 per barrel in terms of NYMEX.

So that is the good news for India and that would play through well for India going forward. If you could just have the government do something whatever it might be to just give India Inc a little bit more confidence to get out of there and start investing, that would be the extra kind of cream on top of the cake, which we are all looking for at the moment.