Nifty may retest 5200-5400; hold pharma, IT: Sandeep Shah

Sandeep J Shah, market analyst sees no reason for the Nifty to head higher from the current level. He is not totally bearish on market but cautions that the Nifty could re-visit the 5200-5400 depending on how soon repo rate hikes are announced and QE tapering, if it happens this year.

Speaking to CNBC-TV18, he said that there may not be an impact of the much-talked about US debt ceiling issue on Indian market. He recommends staying invested in consumption, pharma and IT.

Also read: FIIs invest $2 bn in Indian equity mkt in Sept

Below is the verbatim transcript of his interview on CNBC-TV18

Q: What is the sense you are getting, do you think that frothy gain we saw in September is not going to be repeated for the rest of the quarter or do you think those gates for the bulls still remain open?

A: The market is bracing is for two major events so to speak. One is a possible further increase of the repo rate by the Reserve Bank of India (RBI) and inevitable tapering by the Federal Reserve (Fed).

With these two events looming large on the horizon, it is difficult to see the markets running away from here.

There are some conversations creeping now about green shoots in the economy, but we had the same kind of conversation last year almost around this time about green shoots and the green shoots did appear only to be mowed down.

So, from that perspective the new RBI governor is more likely to target consumer price index (CPI). To that extent, if you were to look at core CPI stripped of the impact of food and fuel prices that is still above 8 percent and that is far higher for anybody who says that he is targeting inflation to accept.

Also, the Indian psyche has begun to accept high inflation actually. Even though it sounds like a contradiction when you look at core inflation in the Wholesale Price Index (WPI) which is below 2 percent and on the other hand we say that the Indian psyche has got used to high inflation. We have had high inflation for an incredibly long period of time if you look at CPI and it is like debt, taxes and inflation.

Q: So, are you saying the rate hike will destabilise the markets or you are saying it won't destabilise because we have learned to live with inflation?

A: No I didn’t say that. What I am saying is we have learned to accept inflation as a consumer psyche. I am not saying that the bureaucrats or the governor will accept that but just saying that we are used to inflation as consumers and that is reflected in the CPI index. So, if the  question is are further repo rate hikes priced in by the stock market, the answer is  I don't think so it is priced in at all.

Although there is bad macro news all around us, the fact that inflation hit a six month high, and even though the rupee bounced back a bit, one isn’t really very comfortable with the rupee in the sense that there could be more downside left from here – in spite of all this, the market is closer to 52 week high, which is a bit of an anomaly and can only be partly explained by the hope that Narendra Modi will come in as the next Prime Minister. But that is a pure hope and it is too early to start pricing that in.

Q: So from now until the end of the year do you think the 6100 level on the Nifty is a ceiling?

A: Last year, around the same time when the Nifty was above 6000, I had given a target of 5200-5400 - it took about 10 months for us to get to 5200. The market did go intraday below 5200 but we never closed below 5200.

However, what I want to highlight here is that if you look at the December 2011 low, the July 2012 low and the low that happened last month, business confidence was successively lower at every point of time but the market was successively higher. So in a sense the market is also giving us a signal that is the only reason why I am not getting all out bearish. So, it is possible that we could revisit those 5200-5400 levels but timing will depend upon how soon we see repo rate hikes, the tapering if it has to happen this year. So that is going to be important in terms of pointing out the map towards getting there.