RBI policy action, reforms key trigger for mkt: Dipan Mehta

The Nifty today closed the day at 5952 level, 15.82 points down compared to yesterday's close. Infosys today surprised the market with better than expected numbers. However, the Sensex ended the day almost flat at 19663.

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Dipan Mehta, member, BSE and NSE is of the view that the Nifty will trade in a range and market players are eyeing upcoming RBI policy action. 
Meanwhile, Sudarshan Sukhani, s2analytics.com, says that the floor of the market has not yet moved lower. The Nifty had been in a range of 5950-5960 in last two days and had also touched 6030. Right now the Nifty is on the lower end of range. If we exclude Infosys then we have actually broken this range decisively. It appears that this range will break and 5950 level will shift downside. Below is the edited transcript of Dipan Mehta's interview to CNBC-TV18. Q: What is spooking the markets because we have seen positive data from Infosys earnings or the reform news that we have heard so far, is this routine profit taking or do you think the up trend is getting arrested?
A: The mid cap index has been clearly outperforming the large cap index for the past several months and there is some amount of profit booking and also technical considerations are playing out at this point of time.
The mid caps have provided good returns over the past year and by and large many have reached fair value levels and unless we see something extraordinary in results, I think mid caps should also have some more sideways movement going forward.
At the same time, before the earnings season some amount of lightening up of positions is also taking place. Under the day, hardly any cues expected to come through till the RBI policy and that is keeping market players under check at this point of time. Clearly, the market seems to trade in a range and there is nothing at least in the near future which seems to be shaking it out of that particular range. Q: Do you see some bottoming out and maybe there could be some bottom-fishing that you would do within spaces like capital goods and infra?
A: Since the end of 2012, there has been an argument if one should invest in defensive or interest rate sensitives.
By interest rate sensitives, one would like to be in infrastructure or capital intensive industries. There is a general impression that even if interest rates do come down it will be 50-100 bps at the best for 2013 and that will not be an adequate trigger or resurrect the capex cycle, which has been down for the past 2-3 years.
Currently, the order flow in the infrastructure sector is also not picking up and quarterly numbers also would be quite disappointing as they have been. So maybe investors are taking some profits at this point of time and whatever recovery that we are expecting to see in infrastructure that does seem to get delayed by few months so the sentiment on the stock is souring. Good quality capital goods manufacturers, who have got very good balance sheets and debt under control – should be kept under watch.
Management comments at the time of results will be of prime importance because stock prices start rallying well before the actual quarterly numbers come out and the interest will pick up as soon as this year turnaround in terms of order book position, better execution and even some positive commentary from the management that at the ground level the situation is improving. But the focus clearly should be on capital-light infrastructure, construction companies or capital goods manufacturers because interest rates may remain elevated for maybe 2-3 more quarters and capex – working capital cycle has remain on the higher side. Risk is clearly present but one has to look out for opportunities. Q: Today Infosys has been the biggest mover. A couple of analysts like CLSA are suggesting a switch from Tata Consultancy Services (TCS) into Infosys now. What is the call on how to play both these stocks?
A: The stock has moved up incredibly and this puts a question in mind whether these are the right levels to get into Infosys. The sector as a whole remains attractive mainly due to gaining traction in outsourcing, so the sector is able to deliver good returns to its shareholders.   
Infosys caught the markets from the wrong side. I have always maintained that the management is fantastic at managing investor expectations and that is exactly what they have done at this point of time where despite all the criticism which they have been facing over the past several quarters they continue to work on the strategy and now we are seeing the early gains from the strategy that they have been implementing over the past four to eight quarters. One needs to look forward if they are able to build on these gains. Q: What is your view with regards to current account deficit number that came out or the pre-deficit number that came out for December, does it weigh on the markets in any form or manner and since it is a precursor to the CAD and hence there is some amount of extrapolation that the RBI might not be able to act as aggressively due to CAD?
A: Post CAD numbers, we saw increased selling and may be today's FII number could be negative or marginally positive.  
The rupee value certainly plays on the minds of the FIIs and in 2012 we saw that the dollar returns were lower than the actual returns of the Sensex and the Nifty. As of now, the rupee dollar value is a major risk for foreign investors and the Indian economy also per se because lot of the sentiment domestically is derived from the strength or weakness of the rupee.
Any further weakening of the rupee on account of higher imports and slower exports will make matters complicated to handle inflation as well as liquidity and various other economic parameters which the Reserve Bank of India (RBI) and the government are watching. So, it is one of the bigger risks in the market at this point of time which is very well reflected in the rupee dollar rate.
That would be an important factor to consider for the medium to short term movement of stock prices. It is a major issue and we would like to see some turnaround before more confidence comes into buying stocks at higher levels. Q: Next week many heavyweights Axis Bank, Bajaj Auto, Hero MotoCorp and Reliance are coming out with numbers. Do you think that it is going to weigh on the movement of the Nifty in any form or fashion or do you think it is going to be an isolated reaction or sectoral reaction, something which we have seen with Infosys today?
A: These are high weighted index stocks and they don't affect the sentiment and the index as well. Some of the private sector banks come out with decent set of numbers and some of the other FMCG or the consumer oriented stocks are also expected to come out with decent results.
But one should factor in minor disappointments here and there. But by and large, I think the earnings season will be similar to the September quarter, which was more or less like a non-event and companies delivered results, which were in line with the street expectations.
There were hardly any companies, which disappointed in a major manner or for that matter surprise the street in any significant manner. The same trend will prevail for the December quarter, RBI policy would be a key event to look out for at the end of the month and then again we get into the Budget mood.
Just because of the Budget and the RBI policy, the markets cannot be held in this range because some amount of buying and expectation of positive news flow should start sooner rather than later. Although earnings are an important aspect to look forward to, but the key trigger could be any developments coming in from New Delhi or RBI. Q: Are you expecting any turnaround in any of the heavyweights in terms of numbers, the kind we saw in Infosys because last time around as well there were many  disappointments like Tata Steel, Bharti and Maruti, anywhere that you are expecting to see a turnaround this time?
A: It is possible, as in the case of Infosys where the sentiment was down and just a minor up tick in the performance could see such an exaggerated move in the stock price, such kind of a situation cannot be ruled out in some of the other laggards as well. Expectations are running low and if companies deliver even slightly better than what analysts are factoring in, then immediately because of low weightage in those stocks and low exposure to those stocks one may see institutional as well as retail money poring in.
So, companies like Reliance Industries which have been laggards or for that matter some of the telecom stocks, may be one or two capital goods manufacturers also could surprise. The absolute numbers may not be so attractive, but its just that they are better than what the street was expecting and that in itself can act as a catalyst.