Rupee fall is scary: P N Vijay

The market selloff is a bit scary, as it is not often that you see the index falling more than 2 percent, says PN Vijay of askpnvijay.com. Talking to CNBC-TV18, he says the GDP numbers were on expected lines, and the upward revision of Q3 numbers was a mildly positive thing. But he says that the fact that every part of the GDP fell is a worry, and the market understood that. "The rupee’s fall is extremely worrying," he says.

Here is the edited transcript of his interview with CNBC-TV18 Q: It is quite dramatic the sell off that we are seeing right now in the market. If you have to put together all the cues that we have got so far this week, what would be the key takeaway be on which way the market is moving now? A: The selloff is a bit scary. It is not often that you see the index falling more than 2 percent. The GDP numbers were on expected lines, both the last quarter and the year as a whole and the upward revision of Q3 numbers was a mildly positive thing. Of course the fact is that every part of the GDP fell so that is a worry which is going to pickup whether it is going to be agriculture or manufacturing or services, but the market understood that. The scary thing is the rupee. The rupee is falling a lot. It should not be falling this much even assuming the strength in the dollar and that has put people back on to the drawing board because rupee fall is inflationary and if it is inflationary then the chance of RBI cutting rates looking at the anemic growth is less. So, all this is playing on, on investors minds and there is no domestic buying. So, I wouldn’t be surprised if foreigners book some profits and sold off today, but the situation is looking rather dim right now. Q: Do you think the downside for this market has opened up quite a bit? Do you see our markets head back to those 5500 levels that we saw at the start April or maybe even worse? A: The market can do anything, but 5500 level is unlikely because if you looked at the macros one is looking at possible rate cut going forward after the GDP numbers. At least the bond markets the way the yields are falling are suggesting that bond traders are looking for rates to come down. So that is a saving grace. Normally what happens is that falling interest rates give a certain stability to equity markets. At some stage that should come out, but the scary thing is rupee. It seems to be in an unending fall. Once that gets arrested confidence will return. I frankly am not talking in terms of 5500, probably another 40-50 points more on the Nifty and then again buying should come once the monsoon recovers and picks up. Q: In terms of any sort of stock specific strategy what would you be recommending to investors to accumulate possibly at lower levels or at current levels? A: They say do not catch a falling knife, so nothing to buy today. But if the market stabilises early next week on the first monsoon showers coming in I think the oil and energy sector looks very good. That is one area where reforms have really happened and for good. So the entire oil and energy sector and that too with crude prices being very soft has immense potential. These are all very good companies. One could pick up an Oil and Natural Gas Corporation (ONGC), Reliance, Oil Marketing Companies (OMC). They are asset rich companies, cash rich companies. So this would be a very safe bet once the fall has stopped. Q: You have been mentioning the Indian Rupees (INR) intermittently in the entire conversation. According to you what levels do you think we could see on the INR and do you think that a level beyond 57 would be something which maybe a range or an average for us going forward? A: The long-term view on the rupee is still bullish as long-term views are based on interest rates and not on flows. Most analysts are looking for the rupee somewhere in the 53-55 range in December, but in between I am sure there was heavy Foreign Institutional Investor (FII) selling today. I will not be surprised if it reaches that horrible level of 57 for sometime. So in the interim the view on the Dollar-Rupee is very bearish, but going forward falling interest rates and falling inflation and probably soft crude prices would give base to the rupee and we are still sticking to our year end target of around 53-55. In the next one month that is the scariest potion for the equity investors.