Don't see Nifty below 5K or beyond 6K; book profits: UBS

Nifty may not go below 5000-5200 level, or break out beyond 6000 in a sustainable way by 2013 end, says Gautam Chhaochharia, head Of India Research, UBS. More clarity will emerge only post elections, more progress and economic recovery will be seen after that, but still it is critical to buy at the right levels, he says.

Also Read: India approves 1st ever coal block auction for private cos
According to him, the risk reward is only below 5300-5400 levels rather than at current levels because currently the market is trading at forward multiples of more than 14 times which is not cheap from any angle. He advises investors to be in the profit-taking mode - specifically on cyclicals and even financials.
On coal block auction, he says it is a step in the right direction. Not only would it resolve the coal issue but also the power mess, says Chhaochharia. If coal is out of the ground then a lot of the problems will be solved, he says. Whether it is the financial sector mess, the non-performing loans (NPL) mess - a lot of it is linked to the power sector, power costs being high, power shortages, among others, he adds.
Despite the good news on coal and hence the power sector, Chhaochharia continues to be biased only toward National Thermal Power Corporation (NTPC) and Power Grid on the back of the promise shown by these companies over the last three-four years.
Other than that he is bullish on IT stocks on the back of US economic recovery. He is positive on telecom and media sectors as well. In the oil and gas space, he likes RIL and Cairn India. He is partial to Tata Motors in the auto space. He is positive on banks with less to mid-corporate exposure, though he continues to see more downside in PSU banks. Below is the verbatim transcript of Gautam Chhaochharia's interview on CNBC-TV18 Q: All of us are very excited by the Cabinet Committee on Economic Affairs (CCEA) clearing those coal block auctions and making it an auction process not allocation and buying back the coal at an inflation adjusted price whenever the power or steel companies to whom it is auctioned produce more than what they need. It looks like a clean policy. Is this a major reform?
A: I would think so, definitely this is a first step towards resolving the coal issue and to that extent even the power mess. We have been saying this to a lot of investors, actually a lot of the problems in India’s case from a macro point of view can be solved if we just get coal out of the ground. So you look at the financial sector mess, the non-performing loans (NPL) mess - a lot of it is linked to power sector, power costs are high, you have power shortages. If we are able to get coal out of the ground then a lot of the problems will be solved. So this is really a big first step, but this is only the first step, it has to be followed not just by the process being followed but more importantly again goes back to the same issue about administrative support of land, environment etc.
So to see those final details about what support do we see for land acquisition as well as for environmental clearance. So will these blocks have already existing environmental clearance and land or it is just explored mine with identifiable reserves? So that is the fine print which will determine the effectiveness of the policy. Q: So will this initial step prompt you to put money into any of these power or even coal stocks? Are you guys writing a morning note to your Foreign Institutional Investor (FII) clients?
A: You could always do a trading based activity around this news flow but our recommendation to investors is always more medium term. So this is a good start but as of now our stance is still within the power utility space, still more defensibly bias towards National Thermal Power Corporation (NTPC) and Power Grid looking at more aggressively because we have seen a lot of promise on this for last three-four years also. This coal auction policy has been talked about, almost about to happen a year and half back. But we have to see it being implemented. Q: For the week do you think the market has pretty much found its level closer to the 5900-6000 mark? Secondly for up until 2013 end do you think we have put that bottom in place at 5200?
A: I would say yes, we have been saying that for the last one and half years so we were never in the crisis camp, we don't see markets going below 5000-5200 levels so that is a very low probability event for us. It was the case earlier, it remains the case for us.
In a similar way for 2013 end, we do not see market breaking out beyond 6000 in a sustainable way. So that is a range which we have been talking to investors for last year and half and we stick to that range that market is not going to fly away beyond 6000 levels and it is not going to crack really below 5200 levels. That is the range we are still comfortable with because ultimately for markets to get a clear direction, we have to look at the post election phase and that still remains a key driver for market from medium term perspective.
That is something which we as well as investors are grappling with. And the way we process that and the way we look at that and advise investors is even if you are looking at building in a more optimistic scenario that post elections we will see more progress and economic recovery then it is also critical to buy market at the right levels. You can remain positive but making a fresh buying position - the risk reward is only below 5300-5400 levels rather than at current levels because currently the market is trading at forward multiples of more than 14 times which is not cheap from any angle. So keeping that in mind - buying level is still around 5300-5400 levels. At these levels purely from a near-term perspective, we are still recommending investors to be in the profit taking mode specifically on the cyclicals, even financials rather than being positive here.