Profit booking, weak FII flow may lower market: Quantum

Sanjay Dutt, director, Quantum Securities, says that he feels that the market is tiring out and the risk reward in the short-term looks very unfavourable. He also feels that many investors who invested at a lower level are waiting to book some profits off the table.

Below is the edited transcript of his interview to CNBC-TV18. Q: What is your feeling about the market? Do you think just a phase will pass of some struggling for the midcaps or do you feel the market is tiring out in the near term?
A: The market is tiring out and the risk reward in the short-term looks very unfavourable. We saw good amount of selling and supply coming in from some large institutions like insurance companies in India. The flows from overseas is also turning a little iffy plus worries on macro front be it fisc or IPP continues.  
Everything is priced in and what makes me a little vary at this point of time is that there is a good amount of complacency that is set in amongst investors in the system that things will look good ahead. One shakeout should happen to take off the compliancy and get valuations at little more levels in the immediate short-term. Q: What kind of levels do you see the index slipping to?
A: The market should see a level of 5750-5780 or around 5800-5850 levels in a best case situation. Q: How do you think will it come out? Will there be a trigger that will yank the market down or will it be a slow drag down that we have seen through the last week?
A: I don't think there is any big trigger coming our way. Many investors who invested at a lower level are waiting to book some profits off the table. However, individual opportunities will continue to outperform. There is lot of interest and people are looking to buy opportunities within different sectors and spaces. But as an index, I don't see anything that will give the market a leadership to even maintain this level, forget going up by 150 points.
It is all about risk-reward. If we trade above 6050 then some technicals would kick-in aggressively and we may see a one final gust to about 6150 levels before the Budget. Q: Would you still buy Infosys at Rs 2800, or is all the good news priced in?
A: I will not buy Infosys, on the other hand I will short it at every level above this level. I don't believe that the IT companies particularly companies like Infosys have correct models.
Currently, we only saw some short covering and the management had brought down the expectations to really lower levels. Currency has benefited them the most. The cash on their balance sheet has not shown anything dramatic. Best case situation would be a market performer but I am not a buyer. Q: What is your view on midcap selling?
A: We saw some volume picking up in the madcap space and many investors who had invested at lower level are trading on this opportunity and booking profit, which is a smart move. The biggest worry is that some large domestic institutions are selling in the space to buy government paper which is likely to come out in next few weeks like they did earlier. Q: What is your expectation on the oil price hike front which may come in the next few days and what can it do for the market?
A: There has been much news about the fuel price hike in the recent past like hiking of diesel price by Re 1 a litre every month but we have not see that being translated into action which is disappointing. Many FIIs are looking at India for a long time to see actions on reforms front.
The government needs to really move forward on reforms front be it subsidies or other aspects, however, the government needs to be credited for the railway fare hike but that will not fully address the key issues of Rs 2 lakh crore subsidies that we talk about in the long run. Unless these issues are not addressed nothing can be cheered on the macro font.   Q: According to the earlier theory, market would scale news highs of January to March period, there would be tremendous momentum on the upside and this would really be the golden phase of the year. Does that theory still hold?
A: Yes it does. We may see 2013 peak in the first quarter itself because most of the positives would be discounted if RBI action comes in; a good Budget comes in etc.
We might see the highs for the year by mid March or end March everything would be prices in because it will take a long period of time till we see corporate setting their balance sheets right and restructure their debt. Corporate sector does have a problem in its balance sheet and most of the sector which is critical to the infrastructure, critical to India's growth story and the investment cycle is not reviving yet. So, those issues need to be addressed. It would be wise to pare down exposure to equities and hold tight one will get a better opportunity over the next nine months. Q: How do you approach this period from the post Budget peak that you are referring to say March 2013 to March 2014 because you would be operating from a fairly high price point if your call is correct and also you run into issues like global sluggishness, elections as we get closer to March 2014? Could we have a cyclically flat or down year even from March 2013 to March 2014?
A: Yes, I believe that would happen in the Nifty. But on the other hand there will be phenomenal amount of opportunities in the equity markets in terms of individual sectors and individual companies because some of them are still undervalued.
One needs to do some hard work. 2013 would be a year of opportunities but I don't think it would be a year to make money on the index because the easy money that was made in the last six months in this 800-1000 points Nifty rally that we saw from the lows, that's done with.
Now, one needs to look at opportunities, stocks and invest in them. Some provide good amount of opportunity to make money even two-three times but the grunt work needs to be done. From an index standpoint, I agree that we may see a flat or none event year. Currency is a cause of worry because if it goes touches 57, then it will reflect badly on corporate's balance sheets. The government will have to strike a very fine macro balance. Q: Post National Highway Authority of India (NHAI) issue, what is your view on infrastructure stocks? Do you think it is a stock specific issue where they overbid for a project and then got stuck halfway or do you think this is one pocket which is going to start struggling, companies that have any exposure to road projects?
A: It is disturbing to know that NHAI and the environment ministry are moving to SC for unending litigation. I think it is high time that we get our acts correct. We are already struggling with infrastructure bottlenecks, delays in projects, execution of projects, input costs of companies, interest cost and restructuring of infrastructure companies. Policy makers, implementers and senior functionary need to get down to reality and set these issues in order.