Alchemy Cap sees Nifty at 5700-5800 only if govt acts now

It is an eventful day for the market as  important global and domestic events are lined up. Both Fed meeting and India's cabinet committee meetings expected in the evening might deliver something that the market has been looking for some time now. However, there is very little expectation that the government will firmly take any action today regarding fuel price hike.

Hiren Ved Alchemy Capital is hopeful that the Nifty will gather strength to touch 5700-5800 in the near-term only on the back of policy moves.
In an interview to CNBC-TV18 he said, "Certainly there is potential that we can move to the highs that we have seen before. Maybe 5,700-5,800 is possible in the near-term if some of the stuff that market has been expecting do pan out. There have been bouts of skepticism all throughout 2012 and people were positioned very conservatively." Also read: Current rally may continue; buy on dips: Credit Suisse
He stresses that the market is willing to pay premium for quality stocks at this point. Ved, meanwhile, advises to seek opportunity in stocks benefitting from weak rupee as earnings growth in the local currency is still to be played out. Here is the edited transcript of the interview on CNBC-TV18. Q: From here on what are the key triggers – is it still global liquidity or do you think markets may climb on anything that comes from New Delhi over the next few days?
A: Markets have been largely moving on what has been happening globally and then there is overlay of what has been happening domestically. I think the more important trigger according to me is what is happening globally.
The correlations to those events are pretty high, but we have now come to a stage in the Indian markets where there is some expectations that finally we should see some kind of policy movement from Delhi as well. If that happens that would really help in the overall positive global context that we are seeing in the markets today. Q: What kind of a potential does this market have to scale up if both these events play out well, do you think we could get back to those highs of the year or is there more in store for us towards the end of the year?
A: I think certainly there is potential that we can move to the highs that we have seen before. Maybe 5,700-5,800 could possibly be where the Nifty could go in the near-term if some of the stuff that markets have been expecting do pan out. I think there is potential for the market to go up because there have been bouts of skepticism all throughout 2012 and people were positioned very conservatively.
Therefore, there is a potential that there could be a rally if the Fed delivers a QE today. Subsequent to that we do see some of the reform measures that we are expecting, especially the hike on diesel price etc. Q: Is it an uncomfortable rally because so much around us is telling that market should not be going up, yet it is going up every day because of global factors - is it a case of people believing in the rally because they know money is there or do you feel there is conviction that markets are going up for justified reasons?
A: What is happening is that quality has worked all throughout this rally. Even if this is a liquidity driven rally, the fact of the matter is that liquidity is now chasing quality and that is becoming a larger and larger proportion of the index.
As the weight of quality goes on increasing in the index and since money chases quality, you will continue to see things move higher. Is there a very high conviction in the rally? I don’t think there is a general conviction in a broad market rally but, there is definite conviction in individual stocks and sectors which have held out pretty well throughout the last 6-9 months or 12 months for that matter.
I think people are now betting more on what is working on the market rather than a very broad rally where everything moves up. This is not the 2003-2007 kind of rally. This is a typical rally that we see in a sideways market and the strong just gets stronger and the weak gets weaker. I think we are going to see more of that going forward as well.
_PAGEBREAK_ Q: The problem has been where do people really park their money in a market like this because every place you look, it’s either scam tinted or there are margin pressures. Where does one really put their money in or how do you position your portfolio for the rest of the year?
A: As I mentioned earlier, it is not new that the market is very bipolar. This debate has been going on for a while now. I think there are two fold opportunities; one is that you continue to hold what you think has done well, which is quality and has done well. I do believe that quality will continue to do well.
The second area is there are also opportunities like for example, we have not seen a significant depreciation of the rupee. Structurally we have moved to a rupee band which is now closer to the mid-50s rather than mid-40s that we were in. That is going to bring a whole lot of other opportunities into play in midcap pharma, midcap IT and these sectors which have seen one or two quarters of advantage of the weak rupee flow through. I think this advantage is here to stay.
There are opportunities where we are seeing that a weak rupee. While it has hurt a lot of companies and sectors, especially those who had dollar borrowings, for companies who have been debt free and actually levered to a weak rupee in terms of benefits flowing through, there still continues to be opportunities. I don’t think that the full PE expansion in those companies has not happened. It is only seeing good numbers quarter after quarter. People will see that there is an opportunity to make money there and more money will flow into those.
Secondly, though there are not many, there are few instances where companies have been able to reduce the debt either by selling assets or by deleveraging or where the core business has done well and where they have demonstrated that they have the ability to pay down the debt and correct the balance sheet while the P&L was good, the balance sheet was bad. If they are able to correct the balance sheet then there is opportunity. There are some turnaround cases and Wockhardt is a classic example which happened over the last six-twelve months, where they were able to turnaround because the core business was doing well.
There will be individual opportunities like these which people will have to identify to make money in this market because otherwise, there is bipolarity. People can decide which way they want to play it. Q: The risk in such bipolar markets is because these become crowded trades eventually and then valuations become unsustainable. Though, people can justify any valuation as we saw in the technology boom. Do you see the risk of that mounting on these crowded trades and justification of 40 PEs might end in grief?
A: It is very much possible but the problem with this is that the timing of this is extremely difficult to take a call on. While that end of the market has gotten expensive and as long as they can still deliver on earnings growth, I don't see a reason why market caps cannot continue to increase over there.
Will we get into some kind of bubble territory? We don't know right now. You cannot rule out anything and one has to be mindful of that. But as long as overall stock of money, a large part of the money doesn't leave the market, money will continue to chase some of these names because people say, leadership seldom changes and this leadership has delivered for the last 2-3 years. This can possibly deliver for another 2 years, who knows? So the timing is difficult. Whether we will reach bubble valuations, we will have to wait and see. Q: What are you hearing form the retail side of the market in terms of whether the participation has picked up or not in this bounce back that we have seen?
A: We don't really work too much with the retail audience but from what I see and hear, I don't think there has been too much retail participation. Frankly, this has been largely an institutional flow and FII flow driven market. The retail participation has been much muted now.
If a trend like this sustains, maybe that could bring people into the market back. But, I personally don't think that there has been some great retail surge. In fact, mostly people are today still predisposed towards putting money into fixed income because yields are still reasonably good and people don't want to take the volatility of global markets. Money is still chasing other asset classes in India rather than equities.