Nifty may retest 4600-4700: Fortune Equity Brokers

Global and domestic uncertainties are putting pressure on the Indian market. Abhijit Chakraborty, senior VP-institutional equity of Fortune Equity Brokers says, market can definitely retest the lows of 4,600-4,700.

According to him, two new issues have come up. “One is the resurfacing of the Europe crisis post the election results in some of the countries. Second is the currency,” he elaborates.

He further says, as long as the rupee does not stabilise, it will be hard to find the bottom for the market.

Also read: Downside momentum is still open; rupee a big hurdle, says Udayan

Below is the edited transcript of his interview with CNBC-TV18's Sonia Shenoy and Udayan Mukherjee. Also watch the accompanying video.

Q: Do you think 4,800 will hold out or are you setting your sides for a retest of the December lows?

A: I think market can definitely retest the lows that we have seen last year of 4,600-4,700. Barring all the issues, which we have already been grappling with, whether its policy paralysis or earnings slowdown, two new issues have come up. One is the resurfacing of the Europe crisis post the election results in some of the countries. We just put the entire solution at stake once again. Second is the currency.

As far as INR is concerned, I think all bets are off. RBI’s efforts are not sufficient. But these issues cannot be resolved overnight. It will be painstakingly long process for both of them to get resolved. In case of INR, I think the issue is much more tricky because India has always had a negative trade balance. As long as the capital flows were taking care of current account deficit, things were okay and rupee was stable. But slowdown of the overall growth of the economy and the flight of capital because of variety of reasons, risk appetite or GAAR or so many other issues have really put the pressure.

RBI has been taking a series of steps. But given its reserves conditions, it cannot take too many bold steps without depleting its reserves further. So, all bets are off, it goes to 56-60 and all kinds of numbers have been thrown. I am not an expert on rupee. But as long as INR does not stabilise, it will be hard to find the bottom for the market.

Q: There is expectation of a fuel price hike sometime in the next couple of days. What can that do for the market?

A: I think better it comes as soon as possible. But it will be too little too late because fuel price hike was demanded long time back, but it has not been coming mainly because of the political reasons. This has given out a very wrong kind of sentiment to all the investors globally that on one hand you are grappling with such kind of fiscal deficit pressures, but because of the political compulsions, you are not able to take the basic steps of increasing the fuel prices, forget about any other meaningful rationalisation of the fiscal structure. So, these things have not gone well.

Maybe there will be a one day trade up in BPCL, HPCL. But beyond that, I don’t think it is going to matter too much because there are other concerns regarding the fiscal deficit. Unless those concerns are addressed, things are not really going to change too much.

Q: State Bank of India (SBI) seems to have lifted the mood a little bit on the banking space, but banks started underperforming yesterday again. How do you see those names doing?

A: I think banking sector has seen a very patchy kind of result so far. There have been some good set of numbers in some PSU Banks, some PSU banks have disappointed. I think the overwhelming concern in the banking sector is the corporate debt restructuring (CDR). That can potentially result into non-performing assets (NPAs) in the current financial year.

So far, in this current fiscal, what we have seen is the gross NPAs have been maintained or rather contained by most of the banks. But it is not going down well with the investors because there has been a record amount of CDR which has taken place this year. With the fact that interest rates are not meaningfully coming down and corporate sector pain continues to be as it was, there is a fear that several of the CDRs can turn into NPAs and not to mention there has been a downgrade of three of the largest banks, ICICI included. So that has created a negative sentiment.

However, having said that, I think in this turmoil there are a couple of stocks, which are looking attractive, SBI definitely being one of them. It is coming out of a long period of underperformance. Finally, the fear of deterioration in the asset quality seems to be behind us. Marginally there could be improvement on that front. So, SBI can do a lot of catch up from here on. Same is the case with Axis Bank and ICICI Bank which have seen significant correction. But in the numbers, the underlying balance sheets are pretty strong. So, from a bank perspective, these are three banks one can look at.

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Q: What about IT? Yesterday, one of the few sectors which held out was midcap IT, stocks like Hexaware, KPIT, Mahindra Satyam. Because of the rupee, are you buying anything there?

A: I don’t think it will be so much because of the rupee. Hexaware has been performing extremely well over the last several quarters. It has actually been a star performer in terms of operational performance within the midcap space.

Among the larger ones, if you see TCS has come out with excellent results. They have guided optimism for future. It is not as bleak as Infosys has been predicating.

One can get excited about the fact that rupee has come to this level and that has positive impact on them. But also on the balance one should look at the kind of demand scenario and the pricing scenario, which is evolving in the US as well as the fact that Europe could also throw out certain surprises as far as demand is concerned or cross currency impact on margins is concerned. So, all in all, I think it would be more of a steady kind of a thing. One cannot take a bet on the IT counters purely because of the rupee movement.

Having said that, I think Hexaware continues to look good. I think there is some corporate action also which is expected on that counter. Apart from the fact that we will pick TCS as our top pick in the sector.