Nifty has better shot at 5350-5400 now: Emkay Global

The Street might have been a bit surprised with a 50 bps rate cut yesterday but for the immediate term, yes, the sentiment has turned distinctly positive, says Krishna Kumar Karwa, the managing director of Emkay Global Financial Services Ltd.

In an interview to CNBC-TV18, he says the RBI’s move of a 50 basis point rate cut was a good move but he sees the effects of the credit policy meet wearing off in a week from now. “The market will again start looking at individual stocks, their numbers and the results season etc.”
Karwa says the signs are that the RBI has given a positive signal. Global markets also seem to be strengthening again. This time around he sees a distinct possibility of the Nifty crossing 5,350-5,400, which has been a kind of resistance for the last month or so and if it is able to cross that then, yes, 5,500 kind of a closing for the series could be a distinct possibility. Below is an edited transcript. Watch the accompanying video for more. Q: How did you read HCL Tech’s numbers?
 A: I believe the numbers have been broadly as per expectations. The stock has done well of late. In terms valuation, the gap between Infosys and HCL Tech will be around 12 times HCL Tech and around 15 times Infosys. So whether this stock has got the steam to further narrow that would be a key question to look out. But we have been bullish on HCL Tech and it has given good returns to our investors. Q: We have seen volatile reactions from the start of the earnings season. Do you expect earnings to have any big bearing on the market this time?
A: Earnings will be very important, but what we have seen of late is that there are some major surprises. Otherwise, earnings are reasonably well discounted for most of the large caps. But global flows and global sentiment will drive the market up or down further.
We have had the benefit of very strong flows for the first three months of the calendar year. But April has been a mixed bag. Broadly, we have been negative in terms of the FII flows. So they would be a key determinant. Again, sentiment seems to be improving globally. Earnings are important, but will not be the key determinant for the market direction going forward. Q: In terms of portfolio positioning, what are you telling your clients to do because the market has been trapped in a narrow range. Is this a time to load on some of the some high-beta stocks?
A: The market has already given its vote as far as where the money will flow into. In the last one month, we have seen FMCG and pharma stocks outperforming the broad markets. These stocks are defensives and also have very strong cash flows, and are not exactly rate sensitives.
Going forward, these stocks will continue to attract more flows because the environment still doesn’t seem to be very clear in terms of the broad economic environment. So these stocks will continue to attract more flows. But for more aggressive investors, we recommend the banking sector where valuations are reasonable.
There is a huge amount of negative expectation and valuations being where they are. So that’s one whole segment, which could attract good amount of flows and the weightage of almost 25% plus on the indices. If the markets have to move up further then this sector should do very well. Q: Do you recommend buying from power either in terms of pure power plays or some of the ancillaries like the financing companies?
A: In pure power plays, we have been positive on Reliance Power for sometime purely based on their execution. The stock has given decent returns in the last few months.
In terms of infrastructure financing, we have been positive on IDFC, REC and PFC. So we believe that these stocks will give decent returns if the sentiment turns positive for these segments. Q: What’s going on exactly with the domestic crowd though, aside from Domestic Institutional Investors (DII) figure that we track, redemptions are still very high from the retail crowd. In fact, there have been many account shut downs itself?
A: The flows in the domestic mutual funds have been muted. It’s not that there have been any major redemptions when we speak to various fund houses. So, it’s neither great inflows or outflows. So has been the case with the domestic insurance companies, with the new products that have been launched, which are more on the traditional side. Net net, their equity Assets Under Management (AUMs) are stagnating.
There are hardly any flows from the domestic side into the mutual funds or insurance companies. Also on direct investing, there have been challenges where we have not seen too many new investors or large investors coming into the market. Overall, domestic investors remain skeptical about the opportunities going forward. Sentimentwise, unless indices are able to decisively cross above 6,000-6,100, I don’t foresee domestic retail investors entering the markets either through institutions or directly.  Q: How do you see the next three months pan out? Do you continue to expect volatility or do you think we might work with 5200 as a base and try and inch higher over the next three months?
A: Despite all the negatives, which have been around post Budget, we have seen that markets have held onto 5,200. So there is a support at those levels. This is, I believe, more a function of expectations that things will pan out more positively. At these levels, valuations are reasonable based on the next 12-18 months outlook.
Going forward, volatility will be very high because of the sheer reason that domestic investors are just price takers. It’s not the domestic growth factor, which determine the price movements. It’s purely driven by global sentiments and global flows and that is something, which I don’t think we have a great control or rather a great view on.
Depending on how the eurozone crisis pans out and how US economy pans out, will clearly drive our market. Q: There has been slow interest building up in various verticals of the media space whether it’s some of the television news companies or things like WWIL, Dish TV, anything that you like there?
A: We do not have a deep coverage on media stocks, so I wouldn’t be able to comment on that.