Correction likely, but Nifty may hold 8460: Phillip Capital

Below is the verbatim transcript of the interview:

Q: The index level at the moment is showing a little bit of a pressure, a little bit of saturation and that too on a day like this when India is doing very well, Shanghai is up 2 percent, Wall Street was almost a percent higher, do you think this month would be a month of profit taking or is it just for a brief period?

A: I think what we have seen since the beginning of this week, there are clear signs of profit booking and I guess that is how the market has opened even today. Although there were some very strong local domestic cues that all of us saw during the market and post market yesterday, the 10-year bond yield going below 8 is a significant sentiment booster although the Central Bank governor did not come up with a rate cut.

So, the going forward path is looking more and more predictable and therefore, the point that you were making just now about the potential beneficiaries are the ones that are doing well today is becoming quite apparent. So whether it is around the interest sensitive sector or it is around the defence or insurance related candidates in the NBFC space, all of them are doing well. So I think the market has become a little more tuned to stock selection but stock selection around an anticipation of a news around the sector or the stock.

Q: By the end of this year, what kind of Nifty level would you be looking at in terms of when this contract ends?

A: I think the way I am anticipating is the following that there could be a brief period of correction that we may see today or for the rest of the week, which should not take Nifty below 8,460. If it were to go below 8,460, I think there is another possible slide of 50 points but no further than that is what I am forecasting. Thereafter, you should scale back. If it is supported by global cues and also from the winter Parliament session - in terms of the news bytes that are coming off from New Delhi, it is quite possible that the second half of this month would allow us to see the taking away of 8,570 and move towards 8,630; I think that is how this particular month could end.

Q: Can you analyse for us, the FII action at this point in time and more importantly normal Decembers, how do they react?

A: I think December is a tricky month in the sense that there is a combination of not full strength on the trading desks because people start moving away as far as the regional and the global FII traders are concerned. At the same time, this particular trend allows liquidity sometimes to be on the ebb, which in turn could amplify price movements on either sides. At the same time, this is also the month, which is a quarter end, and for many a rear-end. So anything that one wants to print in terms of their annual performance, quarterly performance, it is a momentous month as far as December 31 is concerned. So a combination of all this would make me believe that Nifty should be 8,630 rather than 8,460.

Q: How do you interpret these two numbers, FIIs net sold Rs 1,200-1,300 crore in index futures yesterday and they net sold index options as well about Rs 600 crore? Should net sell in futures be seen as negative?

A: I think the overall bias of the future open interest (OI) as far as the FIIs are concerned is still longish. At the same time, there are trading desks of FIIs on the proprietary desks of large banks who do participate in the F&O segment in India where the positions are very short-term oriented. It could be just a day trade or a two-day trade. So I would not look too much into what numbers that you shared with me. I would only look at the fact that the overall OI is looking bullish, there is a positive bias, although the Call distribution at 8,600 and 8,700 strike for Nifty is the considerable number that I would consider.

Q: Let us talk about individual stocks now. The theme this year has been domestic growth. So whether it is SBI, whether it is Asian Paints, whether it is Maruti, all other beneficiaries are of an improvement in the domestic economy, would you continue to play this theme and if yes, what would top your stocks right now?

A: I think that should continue to be the theme also because the benign interest rate reality - not the outlook, I think we have been living with that outlook for a few quarters is around the corner. February and April are the two toss up as far as the first interest rate cut is concerned. There is a consensus on the street that as much as 100 bps rate cut is possible in the whole calendar year of 2015 from the Central Bank and therefore, the spurring of the economic activity both in terms of the demand as well as the kick-off of perhaps the capex cycle would still lend me to play the domestic cycle better.

Also, supporting this particular theme is the fact that there is little growth that is visible in mainland Europe right now. US is still clocking some positive numbers in terms of the growth numbers but I would still believe that as a large domestic market, we would still relatively be focusing more over here. The rupee outlook also is positive so we are looking at actually a stronger rupee.

Q: What would be the stocks to play?

A: The stocks to play according to me will still be very selective in the sense that I would play banks because some of the banks selectively are looking good, private banks are always the top picks but some of them even in the PSU sector are looking alright with a very short-term view, we had come up with names like Lakshmi Vilas Bank, Federal Bank, City Union Bank because of the M&A related activity that may get announced.

On a more sustainable basis, names like Union Bank, Allahabad Bank are looking alright. So that is one sector to play. There is also the all time favourites in terms of the defensives, which may look good, which is coming from names like Marico, names like Asian Paints, there is some positives that could come out even in the IT sector as far as the largecaps are concerned because the growth in the US, which is the largest geography is still looking stronger. In pharmaceutical, I will pick up names like Ipca; there could be a positive news that could come out from Ipca. We still like Ajanta Pharma because of the niche-marketing model or business model. So there are a host of names, combination of FMCG demand as well as the so called defensives that we will play for 2015.

Q: You are still bullish on the Nifty and you expect 8,630 as you said rather than 8,460 then what are the Nifty outperformers and what are the Nifty underperformers?

A: I think the continued strength obviously is visible in ITC, in also it could come around in TCS because of a large order that is being talked about from yesterday. There is also confidence that is there as far as some pharmaceutical names are concerned. So I would imagine SBI would obviously continue to look good. So these are the sectors even within the Nifty components that should look positive. I think the negatives on the other hand will look like a shorter list. There is an overall pressure on commodity segment, so there should be limited upside that one could expect in names from the metal sector outside of Nifty from sugar also in names like ONGC because of the falling crude. So I think those will be the laggards.

Q: Are there any stocks that you would avoid completely at this point?

A: I think I will be more cautious about the commodities because there is not only an overall global commodities softening kind of a regime but the harshness with which some of the commodities are fallen led by crude will make you very nervous about taking long positions in that sector.

Disclosures: I have no personal positions in any of the names that I spelt out however, as a sell-side research outfit within the broking business; we do have recommendations on most of the names that I shared this morning.