Mkt may hover between 4800-5000 in near-term: Sampriti Cap

In an interview to CNBC-TV18, Sandeep J Shah, chief executive officer, Sampriti Capital says his targets of 4,600-4,800 have held on nicely on the downside. “We find that given that the expectations on the government are zero or negative, any attempt at action results in a lot of short covering. So that is what protects us from the downside,” says Shah.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: The Reserve Bank of India (RBI) did not oblige markets yesterday. Does it mean that we go back to 4,800 levels again or do you still see the possibility of a risk-on rally which takes us higher in the near-term?

A: The market has rebounded from below of 4,800 twice. We have not gone below 4,700. If you recollect my targets since January was 4,600-4,800 on the downside and that has held up very nicely. We find that given that the expectations on the government are zero or negative, any attempt at action results in a lot of short covering. So that is what protects us from the downside.

But there are also two other factors which have come into play - one is the fact that the monsoon hasn’t exactly been behaving itself and there are concerns building up about a poor monsoon. We still have a long time before we can take a final call on that. There is every reason to hope that things will work out but that is one concern that is there and we will have to wait and watch and see how that pans out.

But one thing that happens is that the prime minister retains the finance minister’s portfolio and he has somebody like Dr Rangarajan or Montek Singh Ahluwalia to assist him. So then the Congress is happy that a politician - because Manmohan Singh is now a politician – is heading the finance ministry. That would be the most positive outcome the way I look at it is because clearly the Prime Minister realises there is not going to be a third innings.

It is extremely unlikely that the Congress will come back to power and even if the Congress comes back to power, it is unlikely that the Prime Minister will have a third inning. This is his final swan song, the last one year before elections. But there again there is a risk and the risk here is even if he were to hold the finance ministry portfolio, there is the threat of an early election in the next six months or a year.

Also Read: See strong resistance at 5150-5200, sell on rise: Bhamre

As long as elections don’t happen for a year, there is still hope and I think we could sell-off between 4,800 and 5,000, once again holding the caveat that we don’t see a euro-quake. The Greek election outcome has simply ensured that it is not the Greek election outcome which triggers off a euro-quake. All other factors which could lead to a euro-quake are still very much in place but the reason that one still says that one would be a buyer on dips because even if we do see some sort of a euro-quake, you might see a liquidity bazooka being unleashed globally.

Q: How would that translate in terms of what you expect to see in the near-term for the market if you believe there is support at that 4,700 zone? Is there still potential for the market to rally or is it capped at this 5,100-5,150 kind of area?

A: At this stage in the very near-term it is always a bit more difficult to call. I think there are factors which are building up, which are foreign against the market but there could be some downside that is what I mentioned between 4,800 and 5,000. But the upside remains. I think I had even mentioned the last time I was on your show that if we get to 4,600 to 4,800 then the upside could even be 5,400 to 5,600 but we need to wait and see how that pans out and the factors which take shape.

Clearly, one of the factors which could help is that the gloom and doom is all pervasive. In fact I would like to correct what I said last time that perhaps the gloom and doom is not as bad as it was in December 2011. I think the gloom and doom is worse than it was in December 2011 and the market is still much higher.

The pressure from the credit rating agencies is building up. From everywhere the gloom and doom is there and even globally we had a fair amount even if we didn’t have doom but if we had a lot of gloom and fear and panic with the US bond yields sometime back hitting a 200 year low, on German bonds etc.

So we have seen that kind of fear psychosis as well and that is what is giving me comfort that given the kind of fear and the panic that we have already seen the market may hold, we should correct maybe just between 4,800 and 5,000 and not even go back into that original target of mine of 4,600-4,800 which has held up so nicely.

Q: A lot of people are likening this place to what we lived through in 2000 and 2003 where the problem was that growth was not moving and because of that the market had to adjust significantly in terms of its valuations. Do you see that process still underway over the course of the next year or so that valuations will need to keep contracting because of what is happening with growth and not so much with what is happening on the rate side?

A: Growth remains the single biggest challenge. In fact, I am not as worried about inflation as I am beginning to worry about growth now. Sure, the headline inflation numbers are still very bad, food price inflation is still very high but there is absolutely close to nothing that you can do about food price inflation in the very short-term.

On the other hand, the government has again increased support prices for crops between 15% and 55%. This doesn’t sound like a government which is worried about inflation. It sounds like a government which is in perpetual election mode day after day, year after year, every minute, every second, every hour. Sooner or later the government has to realise that they need to think differently and try and do things to revive the economy.

If you look at core inflation, it is still around 5% or lower and I clearly see core inflation coming off further because growth is a real and very serious issue right now. From that perspective, that is what gives me the confidence that the RBI will cut rates in its next credit policy. We haven’t seen an interest rate cut here but this is something that I have been saying publicly that the RBI doesn’t just surprise the market but they also shock the market and that is something that they have consistently been doing.

A couple of months back when we didn’t expect an interest rate cut, we saw a 50 bps interest rate cut and now when we were all expecting an interest rate cut and we saw none. So now that expectations have got tempered, I think it is quite likely that you will see at least a 25 bps interest rate cut in the next credit policy. Yes, my bigger concern is growth but I also think the environment is getting conducive for interest rate cuts and may happen a little slower than most of us expect but they will happen.

The bigger disappointment or the real issue is that there is no room for fiscal stimulus. The only thing the government can do is speed up infrastructure projects, make sure that approvals which haven’t happened for so long finally happen. Of course if the UPA finds another ally besides the Trinamool Congress and are actually able to push reforms but I think even if they just do the basic things, make sure that the bureaucrats act, make sure that projects get approval, environment clearances happen etc, that itself will ensure that growth doesn’t decelerate from the already low levels.

Q: Even if the RBI were to cut modestly in the next meeting, general expectations of aggressive rate cuts this year for the remainder of the year have been toned down considerably after yesterday. In that light, how do you position yourself in the interest rate sensitives?

A: The strategy remains absolutely the same. Nothing has happened to change that. We continue to stay invested and we continue to be buyers of the private sector banks whether it is the new generation or the old generation, we continue to steer clear of banks which have shown concerns on NPAs either reported or restructured assets where banks have shown reckless growth and seasoning time for those NPAs has come. So we tend to avoid those banks completely.

As far as the public sector banks are concerned, we remain cautious on public sector banks. We would either look for a dramatic sell-off in them to buy them or we would wait for signs of the NPA cycle bottoming out. Given where growth is and given that concerns on growth are fairly severe now, the concern on NPAs also builds up.

So we are cautious on PSU banks but willing to buy them on fairly severe corrections or signs that the NPA cycles bottomed out. You may want to build minor positions in NBFCs but that would be minor and this is perhaps not the stage to get aggressive on NBFCs.