Rupee at 60 can make IT, pharma dominant plots: Dipan Mehta

Nifty's  breaching of 5,800 mid-day proves the strong correlation between rupee and the market, says Dipan Mehta, Member - BSE. The rupee seems to have spooked not only the foreign investors but also local investors, he told CNBC-TV18. Usually, when rupee falls, stock markets also fall.

So, with an eye on the rupee, it is better to stay away from stock market for the time being for fear of getting caught on the wrong side. He warns against taking long or short-term positions in this market. He says one cannot have any kind of conviction in this market and must avoid going short. He sees 60/USD as near-term support level for rupee and feels that will change sector themes. There will be a move-away from rate sensitives back to exporters. So, sectors like pharmaceuticals and IT companies’ would come into reckoning, he says. Also read: Fed, inflation concerns leading to bond redemptions: RBS Below is the verbatim transcript of his interview on CNBC-TV18 Q: Nifty lost about 80 odd points. It is about to breach the 5800 mark. What are you picking up? Any word on whether we have started seeing any selling by the FIIs? A: Clearly, this is institutional based selling coming through and it is coming just prior to opening of European markets. The rupee has spooked foreign investors. Local investors are staying away considering there is a strong correlation, whenever rupee falls our stock markets also fall. Keeping that in mind we are seeing selling pressure and insurance companies, domestic investors anyway were not on the buying zone at all. So we are seeing this kind of correction taking place. The severity with which the rupee is falling everyday, last two days at least, that has unnerved a lot of investors over here. Although currencies of other Asian markets or emerging markets are seeing a fall, one should keep in mind that we have been correcting for last several months and this is just a trend which is getting exacerbated now. Q: How do you trade the markets now? We have breached below 5,800 (around 11:40 am on June 11) - Would you look for any technical supports at all or do you think this selling could be a bit savage now? A: The answer to that lies in at what level the rupee settles. Such a sharp fall in the rupee is going to affect balance sheets of a lot of companies, and it is certainly going to impact the earnings as well and to that extent the liquidity flows are going to get impacted. All the variables are changing again and till such point of time if the rupee does not stabilise and we know that these are the new levels we are dealing with. Thereafter, it depends on what economists, managers and what companies have to say. Only after that can one take an intelligent guess as to where the markets are going to stabilise at. When market falls there are no levels which are sacrosanct. I would just say that with an eye on the rupee better to just stay away for the time being. Q: You will not look for shorting opportunities now? A: You could easily be caught on the wrong side. Markets have corrected also significantly. Nifty is down 400 points from its peak and we have not had any major pullback as well. I think shorting would require a very high level of conviction which may not be there. So I would say this is a no-trade zone and we need to just wait this time out. We also have the RBI policy so all eyes will be over there as well and then there is monsoon parliamentary session as well. So we are getting into a bit of a rough weather and better to ride it out than try and be brave and make long or short-term positions. Q: How much of an impact do you think today's news flow on Central Bureau of Investigation (CBI) on Jindal Steel & Power (JSPL) etc. - the stock which is down about 20 percent odd would have had on sentiment? A: Every now and then accidents are taking place and that is certainly unnerving investors. Everybody has one or two of these stocks in their portfolios and it leaves a really bad taste in the mouth. As it is one is grappling with trying to get positive returns for investors and then you have a situation like this which completely knocks overall returns of a portfolio. What is coming out clearly is the quality of corporate governance. Although these things are not spoken about openly, there are question marks over there. Every few months with almost complete regularity one company or the other, one group or the other some newsflow comes out about some alleged malpractice, lack of confidence in the accounts, balance sheet quality and that is affecting the reputation of the country as well. Q: Till what level would you keep it a no-trade zone? A: Let the rupee be over and done with. If it is going to touch 60, then let it touch 60, I think that will be the support for the rupee and then at 60, from where the stock markets are one can get a bit brave. The themes are going to change. We are going to move away from interest rate sensitives back to the exporters. So the pharmaceutical companies and the IT companies would come back into reckoning.