Newsflow won't cheer market till elections: UR Bhat

The entire year for the market will be characterised by volatility and some pullback here and there, but till elections are out of the way, there won’t be much for the market to cheer, says UR Bhat, MD, Dalton Capital Advisors. All eyes will be on  Q1FY14 gross domestic product (GDP) number that will be out today. Bhat expects it to be grim.

Also Read: Nifty may see 5550; Land Bill won't impact soon: Baliga

There is not much reason for FIIs to stay invested in India and will continue to exit the market, he told CNBC-TV18. However, the sell of may not happen in a big way.

As far as the rupee goes, he expects it to stabilise at around 65/ USD if some measures are taken and there is no major FII outflow. Otherwise, 70/USD will not be out of the reckoning, he cautioned.

Globally, with US announcing better than expected GDP numbers, Fed starting its tapering in September may just be a reality. Though there is still hope that Fed may extend its bond buying programme, Bhat said. But if the tapering starts this month, then it will unsettle markets rather dramatically, he added.

Below is the verbatim transcript of UR Bhat's interview on CNBC-TV18

Q: Do you think the kind of relief rally that we have seen in the markets is something we can count on or do you think this is just a technical speculative kind of a short covering and the market should be prepared for worst?

A: I think the market should be prepared for worst because yesterday's bounce was largely because of Reserve Bank of India's (RBI) action on the forex front. But today we have gross domestic product (GDP) numbers which will probably bring a bit more grief because if the industrial production numbers or if the services purchasing manager's index (PMI) is anything to go by, it would probably be quite disappointing. So that would be the cue for the markets today. Like how the market celebrated the food security bill, I think they would celebrate the land acquisition bill also. Therefore, I don’t think there is much too hope for the markets as far as at least today's session is concerned.

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Q: So far the foreign institutional investors (FIIs) have not pressed the panic button just yet but we have seen a significant cash outflow in the August series. Do you see more selling pressure by FIIs in September?

A: Should be. Things have not improved for them to change the view about continuing to be invested in India. Therefore, you should extrapolate this and say that they would continue to exit the market, may not be in a great way but a billion dollar is not something that is going to surprise anybody.

Q: What is the sense you are getting on currency, we did see almost a frothy bullishness on the dollar because of the Syrian issue. You think there could be some bit of a comeback, is there any stabilisation range at all?

A: I think around 65/USD it should stabilise because that is where it would -- on real exchange rate (RER) basis it is probably overshot dramatically above 65/USD. So, that is where it will stabilise once the measures are over and once there is some sort of order in the money market. I think that is where it will settle but typically market overshoot and 70/USD is not exactly out of the reckoning. It could happen if there is some mis-statement somewhere or if there is a wrong step somewhere. But generally it should stabilise around 65/USD and that also presuppose that there is no big FII outlook and if there is an FII outlook of the order of USD 0.5 billion in a week then things could change.

Q: What is the sense you are getting for a one year play on the market? Do you think this is going to be a long bear market where each passing day you might see the markets trending lower with nothing much to look forward probably because of the nature of the politics?

A: That could be the trend, the trend would be slowly tapering down but you will certainly have lots of episodes of volatility, pullback every now and then. But the news flow from here till the elections are not going to be something that can cheer the markets in a great hurry if you see the legislation that is coming out of Delhi, doesn’t look like as if industrialists have anything much to cheer. And it is back to the good old socialism days where everything is decided by the government.

Q: A lot of people are clinging to that 4800-4900 level as probably the next help or a possible bottom. You believe that we can at least cling to that?

A: As of now it looks as if that could be the bottom but you can always toss the forces to do things which are not even expected and one more bill like a land acquisition bill can unsettle the markets.

Q: The two big triggers in the month of September are the Reserve Bank of India (RBI) policy and the Federal Reserve policy. Which one do you think will assume more importance for the market and the outcome of the event could really change sentiment in the market if at all?

A: Even RBI has changed the date to see what the Fed does. The big starting of the tapering in September that is a big announcement that everybody is expecting, if that happens I think that can unsettle markets quite dramatically because even today there is hope that it will not be September it will be extended a bit further. And I think the RBI will position itself based on what Fed says. So I think there may not be a lot of comfort from both these meetings.