Mkt faces bumpy ride in Sept; breach of 5400 unlikely: PL

The gains over the past month came as a welcome surprise for most market players. Indian equity benchmarks rallied over 5% in August on hopes of policy action, monetary easing and strong foreign inflows.

The Nifty surged past the 5,300 mark, and managed to keep its head significantly above that level. However, towards the end of the month, there was a feeling of fatigue in the market. The indices started a consolidation phase, which was fuelled by the logjam in Parliament over the coal scam. Therefore, heading into the September series, worries are that the market may not be able to hold on to its bullish stance. In an interview to CNBC-TV18, Dilip Bhat, Joint MD of Prabhudas Lilladher, said that the market has too many problems to overcome, which will ultimately be the reason for the downfall. “My broader call is that the market at best will remain around these levels, or will start its downward slide, as economic parameters don’t improve,” he said. Due to the vacuum of newsflow, Bhat believes the Nifty will find it difficult to breach 5,400-5,500 levels on the upside. “Even if it does, it will be not be sustainable,” he added. On the downside, Bhat sees the Nifty falling to 5,000 levels, albeit gradually because of the strength brought in by FII flows. “It is very difficult to say whether it will happen by end of September or October, but yes, I think 5,000 remains very much a possibility on the radar,” he said. On the other hand, technical analyst Sudarshan Sukhani of s2analytics.com is of the view that the market is equally poised currently. However, because of the action packed weekend lined up, he advices traders to book profits and exit their positions. “If the market is going to go down, there will be plenty of opportunities to take fresh positions,” he said. Below is an edited transcript of his interview with Sonia Shenoy and Reema Tendulkar. Q: What are the early indications that you are getting for the September series? Do you think that this market could be held a float because of global policy action that may come out either from the Fed or the ECB, or do you believe that the market has started its slide downwards? Bhat: The way things are stacked up at the moment, I think there is an absolute vacuum in terms of the news flow. But as you very rightly put it, there is a lot of expectation on QE3 or monetary easing by ECB. At the same time, there are a lot of problems which probably are not there at the moment, which will start surfacing in Spain and other parts of Europe as people return back from their vacation. The fact that the FIIs are still putting in money is some kind of a hope for the market, but I do believe that 5400-5500 will be very difficult to breach on the upside. Even if it does, it will be not be sustainable. So, my broader call is that the market at best will remain around these levels, or will start its downward slide, as economic parameters don’t improve. If at all, they only become an increasing point of concern as they would lead to very weak and anemic corporate earnings growth. So all in all, the market has too many problems to surmount rather than the positives which can really help or compliment the markets move upwards. Q: If we assume that the market doesn’t stay where they are and there is a possibility that they will move lower, how much lower would you give them? Is 5,000 a possibility for the Nifty? Bhat: A lot of people do argue that the bad news is already priced in and that the market is very resilient, but I for one still feel that the market does remain very vulnerable. 5,000 gradually is not impossible to imagine. It is very difficult to say whether it will happen by end of September or October, but yes, I think 5,000 remains very much a possibility on the radar. One will have to see how much more downside could be in case if it touches 5,000. _PAGEBREAK_ Q: Do you think there is a significant weakness ahead for most of the auto stocks? Bhat: I think so. As the volume numbers continue to disappoint, I don’t think that it is showing any promise at the moment. Though we are heading towards festival season, where hopefully there could be some upsurge in volumes, it still remains a kind of muted scenario out there. Of course if there is rate cut from the RBI there could be a knee-jerk short-term upside to the auto sector. But by and large, with diesel price hike also round the corner, I think the autos probably will still continue to languish or try to seek lower levels. Q: Jindal Steel and Power is one stock which has done very badly over the past few days ever since the CAG report came out. What are your thoughts on the stock? Bhat: I think fundamentally there is nothing wrong with the stock. It just looks cheaper by the day, there is simply no doubt about it. But I think the broader issue is one of perception and possible repercussions if something materializes out of the CAG report. But I am told that some of the big FII funds don’t touch stocks where there is any hint of these kinds of allegations, so I think that will cast a shadow. I am told that some of the funds are selling, especially the big funds, so probably that needs to be absorbed. I think the stock will continue to remain around these levels, despite the fundamentals and the profits still going northwards over the next two years. Q: How many more quarters of pain do you expect banks to see in their asset quality? How many more quarters of pain do you expect to see in banks? Bhat: If the government doesn’t spell out a policy as to how to handle some of these infra projects, especially the road and the power projects, in terms of treating the NPAs, they will keep reflecting for the rest of FY13. Now possibly what is going to happen is some of the big names will start coming up and it will not necessarily be the SMEs which have been really been the source of the major problem for most of the banks. Having said that, I still believe that the RBI and the government will come out with some policies, so as far as the banks are concerned, their credit growth will continue to be muted. Their net interest income growth will also be muted, so it will be not just the bad asset quality but other parameters which could possibly impact the overall performance. Q: If someone is holding on to short positions, do you recommend them booking out and taking profits or do you think the Nifty has the space to move lower in the September series? Sukhani: Nifty is probably equally poised; it could go higher or lower. We are at 5,250 mark where significant breakdown occurs. That breakdown may not occur, so if you have short positions, it is advisable to book profits. Especially because we have expiry, and the new series can start anywhere, and also because we have big news lined up for tomorrow and this weekend. If the market is going to go down, there will be plenty of opportunities to take fresh positions.