Nifty could see support at 5000 levels: Citi

Mohammed Apabhai of Citi in an interview to CNBC-TV18 gave his reading and outlook for the markets post downgrading of the US government by credit rating agency, Standard and Poor's (S&P).

He has seen selling resumption following the downgrade of US debt on Friday night. He said, sell to buy ratio across the Asian region, has reduced to 2:1 from 4:1 seen earlier. One is seeing selective buying coming into the significant weakens seen at the moment. However, there is not much of a panic sense felt. "Selling is being met by some buying coming in at these lower levels," he added. Citing his views on the Indian market he said that declining crude and commodity prices should take off pressure in terms of inflation. "As far as the weakness in Indian market is concerned, we will be looking to take off some of the short recommended since the Nifty was above 6,000 levels", he added. He further said, Nifty could see support at 5,000 levels. Below is the edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video. Q: How is the market mood now? Are you seeing a lot of panic selling? A: We have seen resumption of the selling following the downgrade of US debt on Friday night. Today, we came with sell skew of probably 4:1, 5:1 better to sell. It flattened a little bit as the morning went by, now sell to buy ratio across the region is at 2:1. We are seeing selective buying coming in and some buy tickets coming into the significant weakens seen at the moment. Certainly, a lot of smarter people are looking for names that we think are looking interesting at current valuation levels. There is not much of a panic sense and selling is being met by some buying coming in at these lower levels. Q: There is central fear that over the course of the next few days we may see a process of forced selling, would you say that is the real fear especially in the Asian region? A: I think it is. We have to remember that one-third of equity positions that have been established in the region since the start of 2011, have already been sold. If we see the statements by people like Lawrence Summers, former Treasury Secretary who put the probability of recession at 33%, it seems like people are basically following that. For further selling to emerge from here we will have to see the probability of a recession rising quite significantly. We are recommending investors to following a base ball analogy. We set to the plat the S&P around 1,220 levels and at 1,170 levels we recommend investors to raise allocation to equities up to 90%. At down around at 1,120 levels we will be telling them to raise allocations again to around 100%. Now, that would make us the most bullish that we have been since June of 2010. The risk reward at this level looks like 5: 1 in your favour as opposed to 5: 1 against you when the S&P was around 1,350 levels. Certainly, for markets like India, the fall in crude and soft commodity prices, should take the pressure off the Reserve Bank of India (RBI) in terms of inflation. People will now be looking towards growth. As far as the weakness in Indian market is concerned, we will be looking to take off some of the short that we have been recommending since the Nifty was above 6,000 in October last year. Q: What are you hearing from investors this morning on the India desk? Are there lot of sell outers piled up or and do you think 5000 on the Nifty may hold out after all or do you see that level cracking this week? A: It certainly depends on what happens in the US. I would highlight that there is a lot of positive news potentially that is coming our way. We started off on Friday with US non-farm payroll number. Only 5% of people in survey that we have done in the US had expected such a positive number to come out. The European Central Bank (ECB) is going to be out there buying bonds in Italy and Spain today, so we will find out exactly how many bonds they are going to buy. The Chinese CPI number tomorrow is going to provide another positive surprise to the market. The Fed meeting tomorrow will potentially reiterate the fact the Fed is standing on the sidelines with QE3. They might say something like, we are prepared to step in if need arises although they don