Nifty may bounce back to 5830; bet on FMCG, IT: Phillip Cap

The Nifty may bounce back in the near term and this relief rally may help it retest 5,820-5,830 levels, says Vineet Bhatnagar, managing director, Phillip Capital.

"For the moment it is looking as if Nifty is a bit oversold and short-term traders, day traders could benefit from a very quick in and out strategy," he said in an interview to CNBC-TV18.

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He is bullish on fast moving consumer goods sector and added that rupee’s fall and international newsflow has made telecom and IT stocks very attractive.

Below is the edited transcript of Bhatnagar’s interview to CNBC-TV18.

Q: How are you positioned? The house is on fire but what should investors or traders be doing right now?

A: One can take a very immediate-term approach to the market only for the benefit of the day traders or short-term traders and another way to look at it is as to where the big picture is moving. So, if one were to look and focus only on the short-term analysis, we perhaps have seen a nice bottom getting formed at 5,675 to 5,678 as a region and therefore in a very short-term, there maybe a bounce back that one could see as far as the Nifty numbers are concerned.

We are looking at a region of about 5,820-5,830 where this bounce back or a relief pullback could get halted. However, for the moment it is looking as if Nifty is a bit oversold and short-term traders, day traders could benefit from a very quick in and out strategy.

Q: What is the medium-term strategy? If this is just a relief rally, are we looking at more pain in the medium-term?

A: I think so. One has to view it in relation to what one is holding or what one wanted to get into. I very much echo some of the views like the depth from the market as far as the midcap and the second tier names are going to go out and it is going to run dry.

Therefore, there is going to be a tremendous focus only on the high quality or the big cap names for the simple reason of what has happened. If one looks at the emerging market (EM) space in the last year or so and if one sees what has troubled the international investors as far as EMs are concerned, it includes corporate governance, infrastructure bottlenecks, red tapism and bureaucratic ways as far as India is concerned.

Therefore, if one were to look at what sectors would therefore invite some international or continued international interest, I am inclined to look at only the largecaps. Within the largecaps, I am inclined to look at only themes such as telecom, IT on the back of what is happening to a recovery in the West, the local currency and of course the strong business model.

Despite the fact that the valuations are running high, fast moving consumer goods (FMCG) is a sector which will remain an area of interest as long only investors continue to hold those names in their portfolios.

However, it is a good time perhaps to see some shift from the underlying thematic of consumers moving from a high price to earnings (PE) sector like FMCG into high and quality management into telecom sector. That is how we are looking at medium-term and that lends itself quite nicely.

Q: You were talking about the possibility of a pullback, is it likely that it may not materialise even given the kind of poor sentiment we are looking at in the broader market?

A: Yes, in the sense the overarching approach and the attitude towards the market which is very well captured in the sentiment and the index is quite worrying. One should not even call that these are times of uncertainty because there is greater certainty about how much around us is going wrong.

I would not take an easy path of looking at the market behaviour because of uncertainty. I think it is becoming increasingly clear that we are not out of the wood and there are structural problems that we need to address. Everyone appreciates and understands that we will not have overnight solutions, but till such time we do not get our act together,  structurally why should there be a reason for people to buy the market.

However, if the long-term buyers continue to show their commitment to the market in terms of sticking to the high quality names, it is quite possible that the 40-50 names will continue to shore up the index level and there may not be mayhem on the street in terms of what one sees as a barometer. But the market depth, the advances to declines, what is happening to the midcap basket as a whole could continue to shock in distress for a long time. Another aspect of the long only investors is also the fact that they do not churn too much. So, the volume is going to take a beating as far as the exchange rates are concerned and therefore it remains to be seen how it plays out even if 40-50 names are the names that will stand good.

Q: Have you started seeing the first sign of that because it usually follows that way. First the price gets hammered and then the broader market volumes dry up completely, so that people who are seeking an exit cannot do that without affecting their price very significantly. Have we started seeing the first signs of that shallowness keeping in with the doors closely getting shut on midcap exit?

A: If one were to compare the magnitude or the amplitude of the price decline with the volume that results in that price decline, it is quite visible in the midcap already. But midcap is characterised with that kind of behaviour and we have seen that in the past. We can’t say how much of that will rub-off on the largecap names, but Nifty-Fifty is where the trouble would lie to a very large extent.

Q: What are you seeing with the financials now because they have gone through complete hell in the July series, do you still see a lot of short positions in banks or the Bank Nifty or is the intensity decreasing?

A: The intensity is decreasing primarily because some of the private sector banks who also got engulfed in sectoral washout that we all saw about ten days ago, could be the only silver lining that is visible at this point in time. For example, yesterday we saw some short covering that was visible in Yes Bank. Axis Bank and IndusInd Bank are keeping their heads above water. So, they are very select and few names primarily from private sector banks that are going to be the graceful ones around.

The large ones like State Bank of India (SBI) continued to be under pressure and the public sector undertaking (PSU) banks in general, Bank of Baroda being one that got singled out on the back of its results are going to still receive the treatment of a price impact on the downside.

Q: What is going on with Financial Technologies (FT) because this morning the news is that no fresh Futures and Options (F&O) contracts will be issued from hereon? What have you been observing with that fiasco?

A: I think it is on the back of the assessment that NSEL, the National Spot Exchange which happens to a part of the group, was under some kind of settlement related trouble on Wednesday night. The fact that it comes out from the FT stable was the quick assessment by the whole market that FT in itself should suffer a treatment that it did yesterday.

Likewise, MCX also suffered 20 percent circuit down yesterday and the same today. So, it is this quick assessment that it could be trouble for the mothership itself which is leading to this kind of behaviour. There was a broker conference that Financial Technologies came out with yesterday to indicate as to how much of it will flow through to the parent level but the market doesn’t seem to agree with that.

Q: You do not see any collateral damage for the equity market per se because of what is happening on the commodity end with NSEL?

A: I guess the diversion of investment by high networth individuals (HNI) and private banking type of customers from the equities market into NSEL had already happened. So, it is fair to say that at some point in time, the disillusionment or the travails of the equity market resulted in some of this money going into commodity related products such as NSEL.

If that suffers a blow, as has been doubted in the media in the last two days, it would ofcourse severely impact the capability of the HNIs or the private clients to look at the market as a whole. But it may not have an immediate or collateral damage on what would happen in the equities market by those market players. Ofcourse the place where it converges are the brokerage firms and if the brokerage firms have been running any proposition in the NSEL, because that is also something that one had head about a few months ago, then it will have some impact at the brokerage firm level.