Nifty to be rangebound; ECB meet to decide mood: Experts

D-Street suffered a setback as indices lost strength ahead of the European Central Bank (ECB) meet on Thursday. While the NSE Nifty moved below the 5230 level to close at 5225.70, the BSE benchmark fell 127.53 points to end the day at 17313.34.

Analysts like Sudarshan Sukhani of s2analytics.com said he was considering a long position on the trading side, but it was stopped at 5230. "Now the worry is that the trading range itself is not well defined. 5250 was the low end of that. That has broken today and rather decisively. At this point it is very difficult to get a trade out of the Nifty except for the fact that the markets are sliding down. I don't know whether a short position at this juncture is justified with news coming in. If the market stays where it is we will take a short position by the closing period. Will the 200 day moving average hold? Even that question is difficult to answer. This market is not giving very good signs of going up or down. But I don't see a very big selloff coming," explained Sukhani.
Dipan Mehta, Member of BSE & NSE feels there is a chance of sentiment moving either way with the entry into a very heavy news flow period. As the markets are keenly awaiting the outcome of the ECB and Fed meet on the one hand, it is also looking at fuel price hikes back home. Therefore, in the medium term, Mehta expects the market to range around the 5000 level and believes 5400 could act as a tough resistance.
The Nifty has been rangebound and technical analyst Mohit Gaba thinks 5,500 to 5,180 would be zones to watch out for. According to him, there could either be an upmove or a consolidation from these levels. So, over the next four-five trading session, the best policy would be to wait and watch before deciding on trading positions, quipped Gaba. Here is the edited transcript of Dipan Mehta's interview with CNBC-TV18. Q: Do you think the markets are slipping to that 5000-5100 zone again or do you expect it to hold a higher range?
A: We are entering into a very heavy news flow period and therefore sentiment could get built or broken depending upon how the news flow actually evolves. But the immediate short-term trend will be difficult to predict. I think in the medium-term, we have to assume that the markets remain in a particular range of 5000 and thereabouts are the good support levels and 5400 is acting as a very tough resistance.
But I think a lot will depend upon lot of the news flow, which we are expecting, not just internationally, but domestically also I think depending on how the government takes upto hiking diesel and maybe LPG, Kerosene prices and then how the ECB meeting and the Fed meeting thereafter and we have the RBI meet also. So, just too many cluster of events coming up together.
Maybe it is a good idea to be just be in a wait and a watch mode and look for opportunities only when there is a major correction. Q: When you say the market will just await many of these cues ,do you see the market slide if these cues don't work in our favor, because in all probability they won't?
A: I think even if the newsflow is not supportive, 5000 is a good support level and the reason for that is that valuations become attractive at that level. There is adequate global liquidity and a lot of money waiting on the sidelines. In fact the problem is that there are a few good ideas at these levels and a lot of fund managers, investors are finding that some favorite stocks, pharma, technology or for that matter FMCG or the consumer oriented stocks have run up significantly.
If there is a correction there I think that money will come into play and that will act as a support for the market. At the same time, there are cyclicals and the industrials. Some of the banking shares also have been correcting significantly and if they were to fall even further then certainly they would merit some kind of a value picking or value buying at that point of time.
Our sense is that at around 5000 earnings come into play and they support the market. Beyond 5400, you will need something spectacular in terms of improvement in the fundamentals for investors to pay a higher PE multiple for the same businesses. There should be a rather perceived improvement in earnings growth going forward for the market to trade above those levels.
At 5000, I think PE multiples become attractive and we all know that there is still adequate liquidity in the global system and money is looking for good destination to invest in. Considering the amount of inflows that we have seen, I certainly would say that the FIIs continue to remain interested in India. That certainly is a positive. I still feel that rangebound market is the best possible and the base scenario over at least the next three-four months or so.
_PAGEBREAK_ Q: Do you share the market's pessimism about new found pessimism in even private sector banks now, for example Axis Bank today?
A: The fear over NPAs is not receding at all and despite that we have seen several quarters of NPA. Even the private sector banks are managing NPAs. There is a lurking fear that some kind of a management has taken place as far as NPAs are concerned.
There is every likelihood that there could be an accident or something untoward. Something unexpected could pop out over there and that is keeping investors a bit skeptical on private sector banks. At the same time, I think most of them are over-owned because they have been performers.
Valuations on paper have always looked attractive and even if you wanted to put 15-20% of your portfolio in the financials to just to keep the same weightage as the Sensex and the Nifty, the private sector banks were the first preference.
They are not seeing much additional inflow coming over there. At the same time, I think that things in the economy are not certainly improving. The interest rate cut seems even more remote. With diesel price increases again inflation will move up and I am not so certain that RBI would act as soon as they see a diesel price hike and look at it as a cue to reduce interest rates.
Overall, I think that investors are becoming slightly cautious and underweight from their overweight position in the private sector banks. Maybe, that’s the right way and maybe this trend may continue for some more time unless we enter into another earnings season and then we have to see how these banks will actually perform and manage their NPAs. Q: What is the fate of some of these capital goods names according to you, the likes of BHEL and L&T? Do you see lower levels for stocks like these?
A: I think more and more investors feel that the uptick in the capex cycle is going to get delayed because of government issues in terms of clearances as well as high interest rates. The order flow certainly has been disappointing for the sector as a whole. I think that investors are going underweight in this sector as a whole, but I think valuations are reaching very attractive levels and for a company like BHEL or L&T you have to take a 2-3 years kind of a view. This kind of a situation cannot remain forever.
At some point of time the economics will demand that companies undertake capital expenditure. Do keep in mind that corporate sector per se is sitting on a huge amount of cash, whether it is in the PSU or private sector. Projects will start taking off, which will mean that capital goods manufacturers will see better times.
There is a bit of a turbulence that one has to ride through, but I think for investors who have got patience, deep pockets and little bit of a contrarian type of a philosophy, this is the right time to look at some of these capital goods manufacturers. Some of the construction companies look quite attractive.
The most important aspect to look out for is the companies which have got cash on their books and are not heavily in debt, which means the likes of L&T and BHEL. They are perfect to fit that bill. They maybe seeing some kind of a selloff today and appears to be more institutional in nature, but they are reaching critical support levels and are extremely attractive as far as valuations are concerned. Q: Your call on telecom, would you buy either Bharti or Idea at these levels?
A: No, I think there is far too much uncertainty in this sector as a whole and Bharti of course is facing its own set of problems which are quite unique and distinct from the other Indian telecom companies. Although, valuations and the stocks are attractive and the stocks have corrected significantly, there is a lot of regulatory overhang. We will also have these auctions coming through in a few months and that also can have a negative effect on these stocks.
I would just say one should remain underweight in this sector as a whole and this is typically what happens – the sector is doing well and suddenly you have a lot of government interference and a story which was thriving becomes a bit negative from investor’s viewpoint. That's a real problem in the markets at this point of time where good ideas are just not emerging because of either government inaction or because of certain issues relating to international trends or domestic consumption pattern.
That's where we are kind of positioned at this point of time. But for telecom per se, one needs to give it some more time and maybe next year or so, once we have clarity on license fees, exact growth numbers and level of competition, you could look at those stocks.

More to come.