Once tapering of QE starts money will start moving from emerging markets to markets. So, in the near-term, the Nifty can hit sub 5500 levels, says Sanjay Sinha, founder, Citrus Advisors.
Sanjay Sinha, founder, Citrus Advisors expects the Nifty to slide from the current levels to sub 5500 going ahead. Once quantitative easing comes to an end, money will start moving back to the developed market, he said.
Speaking to CNBC-TV18 regarding government hiking import duty on gold, he believes the import duty hike will lead to some reduction in gold demand. “We may not see the visible effect in the short-term, but once the festive season is over, there will be disincentive for the consumption of gold,” he adds.
Below is the verbatim transcript of Sanjay Sinha's interview on CNBC-TV18
Q: We have seen a bit of recovery in the market to 5,700 levels in the past couple of days but how are you approaching the entire setup now? What kind of range are you expecting to see on the index?
A: The recovery that we saw last week has got to do more with technical bounce back of the market. This is because if you analyse the market from the logical point of view, on the macro economic front we are now getting into a situation that was anticipated but not expected that it would be so severe in terms of downturn, right from the impact that it had on the current account deficit on the index of industrial production. So, the market should go lower than where it is currently.
It will be a function of multiple factors and not necessarily just few announcements from the government. Also, the impact of whatever is happening to the market overseas will have an impact and it will not be content from the cues that are coming from the equity market overseas. But the cues that are coming from the debt market will also have an impact on the Indian market.
On the whole, we have reason to have a good set of apprehension for the Indian market. What we need to get use to is the new normal of the market. We had a range of the market getting a support at 5,500 points and bouncing back, but I am not sure whether that support will hold for too long.
Q: How do you react to some of the jewellery makers like Titan Industries?
A: If you are refereeing to as to whether the import duty hike will lead to some reduction in demand, I think that may happen. We may not see the visible effect in the short-term but once the festive season is over; there will be disincentive for the consumption of gold.
The latest data released by the World Gold Council said that in Q1 of FY14, the consumption of gold by India was doubled of what it was in the similar period last year. This trend could be alarming on the macro front and the government should do something to reduce the demand here.
It affected the petroleum products, once we hiked retail prices of petrol and diesel compared to 8 percent year-on-year growth in demand for these products, the growth has come down to 4 percent. I would expect something similar to happen to gold. Also, there is a caveat to that.
In an uncertain environment people normally rush in for the safety of gold. This is anyway getting discouraged by the prohibition of import of gold coins and medallions. People would not normally buy jewellery in an uncertain environment. So, I do not expect demand to remain intact.
Q: When you said that you expect the market to slide further from current levels, do you mean that it will head back to the 2013 lows of 5,500 or are we headed for a deeper cut?
A: The cut could be deeper because the ghost that was confronting the market couple of months back, which was the Fed tightening, quantitative easing is now coming to an end, money is moving back to the developed market. This will revisit us even more because not only the US is on the path of recovery, euro zone is also on the path of recovery and in that background the sheer magnitude of the slowdown that Indian market has is quite large.
There was a phase for the Indian market between 2004 and 2008 where the macro environment was conducive, supportive of the corporate sectors to perform. Compared to that in 2013 the environment is fairly tough for the corporate to perform.
Therefore, one cannot have a bottom-up revival of the market, the revival has to come from a top down approach and in a situation where the government seems to be in election mode, it has to be more populist in terms of the policies. That cue may not come from the top down and in that environment you might not see the individual sectors perform.
You might get a few scattered performances from individual corporate, there could be couple of sectors that could perform but for the overall market to perform in this background would be very tough. With the measures that have been taken, earlier the life was not tough for the Indian corporate but now it has become tougher. We might slide below 5,500 in the short-term.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.