Mkt to see more downside; shift to fixed income: Religare

After today's dramatic fall in equities, Tarun Kataria of Religare Capital Markets says a bounce back can be expected tomorrow. However, he believes the trajectory of the market remains down for most asset classes. For the long-term, he remains "constructive".

"Right now, the bias may just be towards fixed income. However, in the next few weeks one can revert back to 50-60 percent allocation in equities," he told CNBC-TV18 in an interview. Also read: Sensex tanks 526 as rupee rout on Fedspeak rattles markets Below is the verbatim transcript of his interview to CNBC-TV18 Q: What have you made in terms of trade today and do you think that the Nifty could now grind lower to the 2000 lows of around 5500 that we had seen earlier in April? A: It is entirely possible, the Nifty is all about Foreign Institutional Investor (FII) flows into India. As long as currency remains under pressure you will see pressure on the equity markets as well. So, to see some more pressure on the downside I think is entirely possible. You may have a bounce tomorrow, but the bias clearly both the equity markets and currencies is on the weak side. Q: None of the experts that we have spoken to believe that emerging markets (EMs) like India are a buy jus-t yet. Of course there could be a lot to go on the downside but at what point for the Indian markets do you think it would become an attractive opportunity to perhaps put in some money? At what point do you think this selloff could come to an end? A: If I could predict that with any degree of accuracy I would be a rich man. However,  for the next few weeks the bias in all EMs and it has been for the last several months if you look at Indonesia, Russia, Brazil and India, all have had a bias on the downside. See as more and more press writes about the strong recovery of the US and inflation, slower growth in EMs including China. I think the weight of money starts to shift away certainly through the end of this year out of EMs into the US market. So, pressure will be up, tough to pick a point, but equity is a long-term product if you have long-term views. The fundamental macro view of savings rate, population and consumption in Asia continues to be high. So, the pressure will be on for the next few months, but I would be constructive on the longer term. Q: What would you be recommending to clients in such a market now in terms of a strategy of asset allocation especially towards equities versus fixed income? A: Fixed income is sold off materially. I don't think you can go wrong with 7.5-8 percent compounded returns on fixed income at all. There will come a time shortly when equities also become attractive. So, as in all times portfolio allocation remains sensible. Right now the bias may just be towards fixed income. However, in the next few weeks one can revert back to 50-60 percent allocation in equities. Q: Would you be worried that some of these rate sensitives like banks, real estate, etc could see an underperformance going ahead not just because of the way the market is moving but also with the way the rupee has moved? Any hopes of an RBI rate cut in the July policy also go out of the window? A: Yes, I don't think rate cuts are coming, but what is happening you got to separate today from the rest of it. There is always an over reaction, money is flowing out and will continue. However, there is a violent reaction today which you cannot expect for it to sustain. If like most of us, you believe that in the long-term private side of the banking sector remains as an attractive investment story. Then there will come a time where one should start looking at the private sector banks. Growth in India while we might have a quarter or two of sub 4 percent growth, fundamentally it is still a reasonably strong growing economy. So, the bank sector should be fine.