Event driven rally ruling mkt; may see consolidation: Emkay

The government and the opposition have reached an agreement on the banking bill and it is likely to have a positive impact on the market. But, Dhananjay Sinha of Emkay Global Financial Services believes the issue has been going on in parliament for quite some time and most of it has been priced into the market. Therefore, any incremental trigger from the news would be limited at this juncture, he feels.

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Sinha further added that over the last two weeks the domestic market has seen a run up of about 4 percent while globally, markets have gone up around 5 to 6 percent. Hence, a combination of reform announcements back home and a positive expectation about a resolution of the US fiscal cliff have contributed to this positive mood, he opined. Overall, Sinha is of the view that the current rally is event driven and once these are over, there could be a period of consolidation. He is also not very hopeful of a bull run going forward.
As far as the positive October IIP is concerned, he believes it has received a boost from consumer goods, textile, apparel, food, food products and food items. Here is the edited transcript of the interview on CNBC-TV18. Q: We just have the news that the BJP and the government have reached an agreement on the banking bill, do you think this is enough good news to pull the market up from that resistance that it is seeing at that 5,920 or even 5,900 mark?
A: I guess this particular news about the banking regulation amendment bill has been there in front of the Parliament for some time. Yesterday there was some news about the back and forth that is happening and certain conditions laid out by certain allied parties.
My sense is that this news is there and most of it might have been priced in. If there is a certain amount of understanding between the BJP and the government, I would say that incremental trigger from there will be marginal at this juncture. Q: How do you look at the market now, you would think that it's going to make it very difficult to climb up beyond 6000 at this juncture?
A: If you look at the way markets have behaved over the last two weeks, there has been a run up of about 4 percent and if you look at the global markets, it has run up by 5 to 6 percent roughly during the same period. I think there is a combination of both global and domestic factors and from a global standpoint, there has been certain positive expectation with respect to the fiscal cliff and how it will be finally resolved in the US.
You have a cluster of announcements here with respect to the reforms etc. I think these two things have been feeding the market. My sense is that these are event driven rallies and we will have to see what happens after the events are over. As those events get over there will be a phase of consolidation after that. Q: Now will you start betting on these banking license hopefuls?
A: If I am hearing the government right then they have been saying that they would want a certain amount of consolidation and allow bigger banks to emerge within the public sector banking space. So if that gets through, there is certain positive sentiment that might arise for the smaller banks.
That is one part of the Banking Amendment Bill. The second part is this whole voting right that is talked about and certain powers with respect to the RBI. There are four parts to it – the other two parts are related to the banking licenses. I think those will be good for the private sector banks. My sense is that it should hold true even going forward.
I would think that banking licenses will be important both for takeovers that might happen within the private sector banks and the new banking licenses that have been talked about. I think that might go through. Q: What would be your six month or 12 month view of the Nifty? Would you see a substantial gain considering that we seem to be turning around on the industrial output front, the IIP number was good and you are also seeing some kind of a constructive political action. What is your six or ten month view of the Nifty?
A: I would say that if I have to look at the market from a multiple standpoint and the way market is, a lot of optimism is already priced in. It implies that there has to be a significant earnings growth going forward. But, I would say if I am looking at the markets, these will be largely event driven and my sense is that you will have a certain amount of volatility that might continue even going forward.
I will have to take a view based on certain development of events, both global and domestic. I would not say that it will be a secular bull run from here. I do not see that happening and even if there is recovery going forward, we were expecting about 6.5 percent GDP growth for the next year. My sense is that the trajectory on growth over the last two years has been somewhat lower than my expectations, which has generally been lower than the consensus view. We will have to take it as it comes. I think if it is less than 6.5 percent or closer to 6 percent, most of it is actually priced in.
With respect to the IIP, I think we will have to look at how it pans out going forward. My sense of the IIP is that a large amount of boost has come from consumer goods, textile, apparel, food, food products and food items etc.