See Nifty base at 4800, says Ramesh Damani

If one goes by the general mood in the market, today's mid-quarter policy review of the Reserve Bank of India is expected to have a friendly outcome. A CNBC-TV18 poll conducted suggests that most participants are betting on a 25 bps cut in rates. Ramesh Damani, member BSE, also agrees with the general mood but says he will be surprised to see more than 25 bps rate cut today.

After cutting its policy rate by 50 basis points to 8% in April, the RBI had been widely expected to leave rates unchanged in June. But domestic and global cues have deteriorated since then and the RBI action is more likely to be in favour of liquidity easing. Damani says Indian equity market will strengthen from a favourable RBI action. In addition, valuations are attractive at these levels though investors are sceptical of taking the plunge. Damani says Eurozone problems are far from over although Greece election results are out. He cites Spain as a bigger issue that will haunt Eurupean Union in the days to come. Below is the edited transcript of Damani’s interview with CNBC-TV18. Also watch the accompanying video. Q: What is outlook on on the outcome from Greece and whether you think there is more follow-through for equity markets because of it? A: The market would breathe a sigh of relief. There would be no flight of deposits from Greece Bank. Greece will remain in the euro for the next few days. There are two contrary points. First is that in Greece the stock market is down from market capitalization of USD 300 billion to roughly USD 30 billion. So, a lot of bad news for Greece stocks is in the price. The stock market is down 90% if you believe that’s possible. The bigger question is having kicked the can down the road how is it that Greek with its economy contracting, unemployment high going to repay 500 billion euros worth of debt in economy that’s contracting. That’s still anybody’s guess. That’s really hard to do. Greece has always been a sideshow. The media has been focused on it, but I think most analysts have figured that the real problem the big enchilada is Spain and perhaps even Italy, but Spain for right now and not Greece. Greece as a percentage of the EU or percentage of global economy actually doesn’t matter. What matters is what is going to happen in Spain and the news there is not particularly good. There are still some huge problems that the European part of the world economy has to recover from. Q: Are we going to get these periodic trading rallies based on these events which come in which fade eventually because of the underpinning of very tepid global growth or do you see some change in the overall trajectory of the market or trend in the market? A: As far as the Indian market is concerned -- and perhaps as a corollary of the US market -- we have build a base at 4,800. We have gone and tested that couple, two times, three times and in the last six months the market has held there. Market has risen very sharply from those levels. There is a glimmer of good news coming into India for many times. Commodity prices are going down. There is a huge aversion to equities not only in India, but globally which is generally good for equity prices. You are going to see some sort of rate cut from the RBI today. Increasingly I am finding in the broader market that the market is making higher tops and higher bottoms. In cash, if you want to buy a significant block of stocks you can only do it by paying a price. You are no longer getting it at a desperation price that you got say maybe in December lows of the market. So, the market looks like it’s tightening up. Value hunters are coming in there. I don’t think if you want to build positions in broad swath of equity that you are going to get absolute bargain basement prices as you got in December. In that sense the market looks better here. The US market had a May soothe. It would continue its rally. Not since 1950s has the yields on the S&P been greater than the yields on the bond market. That’s almost an inviting you to buy stocks in America. Good blue chip quality stocks available at about a 3% year in a market that is paying 1% interest on bonds. So, the environment in New Delhi and in New York look much better to me than in Europe. Q: About the RBI, how important do you think that is going to be in order to ensure any strength for the market, enduring strength? A: I would be surprised with a more than 25 bps. The RBI has not generally tried to please the constituency called the financial markets and they are very focused on inflation. What the market will look for is a fall in commodity prices. If oil goes down to USD 75 per barrel, it is a big bonus for India, everything gets solved in India almost overnight. The current accoaunt deficit, inflation, everything else. If the monsoon is good again a big bonus for India and increasingly the stocks aren’t available. If you go and sit on the screen you realize stocks aren’t available. So the environment is not bad in which to go and buy stocks particularly in cash, they are not really rallying significantly yet but we can sense the tightness on the screen. To await significant liquidity might still be 3-6 months away. I would be very pleasantly surprised if they did a 50 bps cut this time around. _PAGEBREAK_ Q: How expectant are you of any QE3 like action, because as we were discussing earlier the data from the US has been pretty poor including on Friday? A: The odds are growing of that. The odds are pretty sharp of that. You are getting into a presidential cycle in America and for some reason there always seems to be a huge urge at that time to keep interest rates low, to keep liquidity flowing in the market and to get out of recession to create jobs. So, indications are that we will get a QE3. Q: What are the odds that we get back to those 5600 kind of levels on the Nifty again in this rally? A: I don’t know. The important point from my point of view is that the market has build a base at 4,800, so effective stop loss would be at 4,800 levels. My only suggestion to investors is that market returns aren’t linear. If you think you can time the market and decide oh well, this time it’s not going to break 4,800 and so on we will invest now, good luck, I don’t think that’s going to happen.  From my own portfolio, just looking at various stocks in there a lot of them are not even close to the lows they made in December. They made so many panic bottoms in December. They are up 40-50-75% from those prices. Suppose even you are right and the broader averages go back to 4,800-5,000 levels you may not find your stocks at those prices. If you find good quality companies, I think you buy them. There is so much risk aversion to stocks right now globally, not only in India, but just globally, people just don’t believe in equity anymore. Equity valuations are so compelling that you should take a contrarian bet and put some money at least into equities. Great dividends, tax free yields, low valuations that’s how you make money in the stock market by going against the popular trend. Q: What do you do with the consumers in your portfolio, they are the ones which have performed and they have been standout performers but off late because of growth slipping the first question marks on whether you should be checking out of the consumers have come to the fore, do you stay with them or do you book out? A: It is a tough question, but just two days back HUL and ITC made lifetime highs. These are the best proxies that you will get for consumer stocks in India. They are at lifetime highs so I am certainly not going to sell them right now. The advance tax payment of HUL was a big boost for that sentiment. They are expensive I am certainly not advocating that they are bargain basement anymore as they were a year or two years ago when you were recommending HUL were pounding the table. They are not cheap anymore, but they may be the leadership in the next phase of this bull market whenever it starts. So I certainly won't get out of them at this point.