Market to remain choppy; Buy DLF, RComm, PSU banks: Experts

Moneycontrol Bureau

Nothing seems to be going in favor of Indian economy at this moment, which is reflected by the sharp decline in Indian equity markets over past two sessions. The growth story of India keeps battling with new villains every now and then whether it is in the form of falling rupee, sticky inflation, ballooning current account deficit or scary high gold imports.

Adding to already existing woes was a disappointing index of industrial production data, which once again confirmed that there no meaningful recovery in economic growth.

Post economic growth hitting decade low of 5 percent and a visible decline in April inflation investors and experts were hoping that the economy had bottomed out and growth would revive from there.

However, IIP reading for April, released today came in at 2 percent, lower than the 2.7 percent that the market was expecting. Consumer Price Index-based inflation for May came in at 9.31 percent, which was lower compared to 9.39 percent in April, but way above sub-9 percent expectation of the market.  

There is no sign of a growth pick up," JP Morgan economist Sajid Chinoy said in an interview to CNBC-TV18. Rupee decline has also now doused any hopes of rate cut by Reserve Bank of India in its upcoming monetary policy on Monday, which could have provided much needed impetus to growth.

However, what could be seen as a silver lining, Fitch Ratings today revised India’s outlook to stable from negative, affirming a BBB- rating. The rating agency changed the outlook with an argument that government had taken steps to contain fiscal deficit and is likely to also meet FY14 budget deficit target of 4.8 percent. Following the Fitch Rating upgradation and RBI measures rupee today recovered and rose 1.03 percent or 60 paisa to close at 57.79 against the US dollar.

Despite this positive development, experts believe that markets would remain choppy for next few days. Technical analyst Sudarshan Sukhani of s2analytics.com said, "This choppiness is going to continue for a few days because after a steep decline markets will take a pause which is what we are doing now.”
 
Apart from rupee depreciation, recent outflow of foreign institutional investment funds has also been worrying the market participants. 

“This correction was not only rupee driven but also there is a larger trend which is been emerging that the developed economies and particularly US is bouncing back. Entire pack of emerging markets be it India-China, or some of the BRICS and other Latin American countries; they all are facing much severe downsizing in growth as compared to what was envisaged earlier,” pointed Amisha Vora of Prabhudas Lilladher.

Robert Aspin, Senior Investment Strategist at Standard Chartered Bank also believes that FII flow would move to US market from Asian markets. “We prefer US… and we have that view based on the stronger US dollar expectation and also on the stronger housing market, which we believe will be an extremely important positive for the underlying US economy, ” he added.

How do trade this choppy market?

In this volatile market SP Tulsian of sptulsian.com advised to invest in public sector banks, real estate and telecommunication stocks which has severely corrected in past many sessions.  

“We have seen building in those stocks seems to be resulting into the short covering, I don’t think that there is any kind of incentive for the traders to go short,” he added.

Among publics sector banks he prefers to go long in stocks like State Bank of India (SBI), Bank of India (BOI), Dena Bank, UCO Bank, Oriental Bank. Among real estate he prefers DLF, Indiabulls Real and Unitech.

In telecom space he recommended Reliance Communication but advised to avoid Idea Cellular. “One can go long in Reliance Communications for a target of about Rs 112-114 in the near-term.

Among other individual stocks, he likes JP Associates, Jain Irrigation, which are likely to see short covering for next couple of days.