Domestic factors leading to mkt wobbliness: Dimensions

Below is the transcript of Ajay Srivastava and Anu Jain's interview with Anuj Singhal and Reema Tendulkar on CNBC-TV18.

Anuj: There was quite a bit of volatility this week, the market were dancing to what was happening globally. Do you get a sense that this kind of volatility is going to be the name of the game and the kind of outperformance that India had for the better part of the year, that might be coming to an end or do you think it was just an aberration and the markets will again get back all time highs and start outperforming again?

Srivastava: I think till the QE santa is there, one needn’t worry so much in my view and the fact is that this will keep stepping in as a global markets are concerned. There is a lot of comfort on the liquidity side. The discomfort lies on the fundamental side from the Indian economy because that is where the wobbles are coming from.

Even if you see the recovery, it is wobbly. The numbers belie the sense in the market which was telling us that there were a lot of short covering, a lot of kind of arbitrage buying, a lot of this unconvinced recovery is what I would say what the market was. So in my view, while globally we could still feel sanguine about the fact that global liquidity flows could remain strong with Japanese and more importantly the European union QE coming in January or end January but I think the problem is going to start from the local end where fundamentals are looking weak. You saw the Mid-Year Economic Survey, it is saying it is going to be a challenge for fiscal deficit, the local demand -- that is one thing missing and nobody is talking about it -- is collapsing and that is the economic advisor says they are going to clamp down expenditure that is exactly the opposite of what the country needs today. So fundamentally as we keep saying that the risk is in the Scorpion’s tail and the tail is the fundamental of the economy. Globally the tail could do a lot of damage.

Anuj: What is your sense, is there risk that the market has just seen a bit of relief rally and it will seek lower levels maybe even complete more than 10 percent correction. So maybe lower than 7,800 on the Nifty not immediately but maybe in January or February?

Srivastava: Index can be managed. Index is managed to the extent that a lot of FIIs want to keep index stock going there but the sense one is getting is that the 60-70 percent of stocks have already seen and may continue to see 10-20 or even 30 percent correction. So while one could base the view on market and on the index, underlying the index almost 800-900 stocks which make the major trading of the day and which people or HNIs are getting invested and so on, that is where the real damage is because that is where the risks are, that is where you have seen what happens to number of stocks which are leveraged and they have been mutilated in the market. The risk is that the broad spectrum of market could see serious corrections in every single wobble and while the whole big market, the indices may still remain looked to be stable and that is where you are going to watch out for what is your stock pick versus trying to play the index.

Reema: Volatility picked up a couple of notches this week. How would you approach the Nifty now, are you also unconvinced with the recovery and therefore your strategy on the Nifty would be to short it at higher levels?

Jain: The fact of the matter remains that Nifty has held on to the 50 day moving average today despite the profit taking, which happened in the last half an hour to 45 minutes. So as long as you held the 8,229 today which was a good sign despite the profit taking which is also a sanguine move because it shows people are not into that crazy mood that it is going to open up 100 points up on a daily basis, you are basically forming a new trading zone. So you have seen that one way ride from Dhanteras 7,800 to 8,600, you went back tested that so that is almost close to those levels and you have pulled back to the more or less the 50 day moving average. You can now trade between a zone, which is more like 8,100-8,140 to 8,350, which could be a few weeks or even a month and you could stabilise on that level. So I don’t think there is any real need to take a call on either side of the Nifty in a rush, you have to see how it is stabilising but the fact that Bank Nifty held on much stronger during the down ride also then break any of the major support lines, Nifty did break a few support lines, which would get us a little tad in uncomfortable but given the way we have closed today, Bank Nifty is holding on to the 10 day moving average which is stronger than the Nifty, you have IT index which gave a slight positive breakout. So I would say that the bias would be flattish to positive. I am not ready to short the market till there is something more, which is a global clue. I think it is a rangebound market, more a time for traders to kind of get in and play because as of last four-five weeks, there was only a one-way play. Now you can play both sides of the market depending on how the stock is giving you a signal.

Reema: Looking ahead on Tuesday, the Parliament session comes to an end, how would you rate the Winter Session?

Srivastava: What do I rate? Nothing happened. That is the point, which I am saying that the wobbles are all domestic, the government had a brilliant chance to unleash a slew of reform measures, to talk up the system and get things moving but it got devolved into all kind of side issues etc which bothers you because the challenges are huge and the government faces the huge challenge. Let there be no mistake. Apart from the rhetoric, the challenge is huge, the Parliament session was wasted completely. That is why I keep saying that the fundamental of the economy are weakening and the economic survey says that very clearly and if we don’t step on it and I think the only segment, which remains comfortable is the bank because RBI is now after the new guidelines on restructuring of the loans has told the banking industry very clearly, evergreening is given to you, now go ahead and evergreen all the loans. So yes, you can buy the Bank Nifty, you can buy the banking stocks with a comfort with the fact that RBI will keep giving them relaxations or recognizing the bad assets. So buy that. But the fundamentals of the economy are weak and the government has got a challenge and that is what I say, this is where the problem lie. The parliament was a waste.

Anuj: This week there was quite a bit of recovery in two stocks, HDFC and Oil and Natural Gas Corporation (ONGC), ONGC in particular which had almost gone in a bear market but this week there was quite a bit of recovery in that one. What is your call on these two stocks?

Jain: ONGC is still in a bear market. I would not be a buyer, there could be a pullback to Rs 360 or maybe Rs 380. I was just looking today that the one-year high is Rs 457, the three months high is Rs 429, the one month high is Rs 400. So the highs are kind of making lower levels. Yes, there is a overhang of an FPO, there are other overhangs but for the stock to move the technical levels would be that it holds on to Rs 380 and that is a distance away. For a pullback traders may trade in and trade out of it but I would not take a positive bias on this stock as of now technically.

HDFC on the other hand is like a little range bound but with a positive bias. So it is at about Rs 1,115, can have a resistance on Rs 1,177, so I think any lower levels around that Rs 1,080-1,100 would be buying points for it. So lower levels on HDFC definitely make a buying point and so one is a buy that HDFC and ONGC is definitely I wouldn’t touch.

Anuj: What is the chance of this market having a pre-Budget rally? 10 days back, there was a call that the Nifty may go to 9,000 ahead of budget, do you get a sense that if global markets stabilise and if something moves on the domestic front, the bulls would still have the upper hand and the market can make a pre-Budget rally, a big move towards 9,000 mark?

Srivastava: The bulls always have upper hand in the market where liquidity is abundant and it is very scary to short the market. So bulls have an upper hand but I would be very surprised if the market ends to go to 9,000 without a serious correction because what are we expecting from the Budget, are we expecting any concessions, are we expecting any major moves from the Budget, I don’t think so.

We all know about the government finances, the review says that all what the government situation is. I think it can happen but I would wager against it to say this market is not going to 9,000 before the budget because the budget expectation is something which government announces perhaps -- I am not even sure what it can announce from now in next sixty days to make it go to 9,000, so I am not able to visualise a scenario where there is a serious 10-15 percent move on the basis of expectation coming out of a budget.

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Reema: ITC as well as Hindustan Unilever Ltd (HUL) corrected a bit, ITC in particular fell off from those levels of Rs 400 and the decline was very swift, what is the call on ITC now?

Jain: We have had one sharp fall then one sharp recovery and now it is giving up against the chart pattern is not something which is giving a lot of comfort and if one were to see it is close around Rs 368 levels and the fact still remains that below Rs 365, it will again be bearish. So it is that support levels, can it hold that Rs 365 levels is something that I will need to see but otherwise it will head down to those Rs 348-350 levels, which we have seen earlier. So all on all we have seen always this chart pre-budget always have a negative bias towards it and so if you are looking year-on-year on those chart, this is a tough period where the chart can go down a little bit. At Rs 348 levels, I would probably wait for the Budget to be over before I would want to take a call of bottomfishing this stock.

Reema: How would you rate the conflicting commentary that we got on the IT sector, TCS on one hand which sounded a bit cautious as opposed to an Accenture which went and upped the guidance for next year, what is the call on the sector now?

Srivastava: Call is very simple and 45 days back a call was to remain light on this sector for the next year. Call remains to be light unless there is a dramatic move on the rupee side and rupee has moved dramatically in the last three-four days. So unless if the rupee goes to 65/USD, it is automatic, it is a no-brainer to go into IT stocks. So that is why I say the fundamental factor is will the rupee depreciate by the magnitude. If that is what is coming around too, yes, the call is good but otherwise, I would tend to be light on this sector at this point of time in spite of all the issues with the rupee that we see so far because I don’t know about Accenture report but the fact of the matter is in reality the ground level, the demand which is coming or the order closure -- which is what TCS is talking about that orders are not closing sufficiently fast enough that is not happening for any company. So I would tend to believe that it is more a recovery in IT stocks, which has taken place in the last 7-10 days, more a flight to safe haven in the market volatility than a real call on a positive IT. We all go back very quickly to IT stocks the moment the market become volatile, that is what is happening here, I don’t think it is a genuine call that IT is going to outperform other sectors next year unless the rupee goes back to 68/USD.

Anuj: What is your call on frontline pharmaceutical stocks?

Srivastava: Pharmaceutical is under attack and we must understand this clearly that biggest market of the pharmaceutical industry is the US which is clearly on to a backlash against the Indian companies. It is across the board now. So you would see more and more of FDA bans, you will see more and more of FDA issues coming up, the IPR issue raised its ugly head, it is temporarily suspended, the serpant is under the basket, it might surface back again. So domestically focused pharmaceutical companies or the businesses will do well. Which are the bigger stocks, which are focused in the US markets, I think are going to see a very painful 2015 unless the government can set it right. The point is that forget the growth, we are looking at degrowth in the US markets in 2015 for most pharmaceutical companies. That is why the call now is that this had a good run last year but next year for focus on export is going to be a bad time for the pharmaceutical companies. So domestically focused companies are good and anything which has got to do with the US market, I think is going to be a terrible 2015.

Anuj: You have some midcap picks for our viewers, you want to name them?

Jain: I would say banking is a consensus call right now so back to the PSU banks whether it is a Union Bank which looks good at about Rs 222, can move up -- this is the caveat that these are all about two week calls -- to about Rs 234. So about 6-7 percent move there.

Bank of India (BOI) which is at Rs 291 which basically can go up to Rs 310. Have to take into view that if the Nifty does break the levels of another 40-50 points, there would have to be a stop loss according to that. I wouldn’t put a stop loss on the Bank Nifty levels because the PSU banks are pretty much more volatile than the Bank Index. So I would place it with a Nifty breaking it 8, 140. So accordingly, I would basically keep a stop loss and the positive bias is not just on BoI and Union Bank, these are just two names which are striking on the charts a little better.

Reema: Are you constructive on Reliance Industries Ltd (RIL), it moved up smartly over the last two days?

Jain: Similar story as ONGC. You have had one month high is lower than the three month high and not really convincing on the chart. So at those Rs 860 levels, you get support and then it bounces back so at Rs 900-905, you will have some short covering which could take you up to about Rs 940. But beyond that 3-4 percent move, there is nothing which is on the charts compelling to take up position into it. Relatively speaking if I had to look at the sector and pick up, Bharat Petroleum Corporation Ltd (BPCL) at these levels makes probably technically also more sense and fundamentally more sense, Castrol makes a little more sense. So I would probably look at those plays instead of looking at RIL.

Reema: Purely on risk reward, are metal stocks looking attractive given the kind of sell-off they have seen over the last two-three weeks?

Srivastava: Not at all in my view. I think you have to stay away from these stocks because these are very good trading stocks and they are trader’s delight absolutely but for an investor, these are nightmare sitting out there and nothing tells us that in the next three-six months, there is going to be anything great happening. India is not a great consumption story for next six months, China has stabilised a little bit, Europe where it is, so nothing tells us that the story is going to change for these companies. Even if you look at the local regulatory scenario for these changes will they get the new mines etc, only for those companies who win coal blocks at a very cheap price and that is where you have to put a finger where the companies are that whoever is a company which is going to get a good amount of coal block allocation and the price is going to be very cheap, if global prices are the lowest in the last whatever years are, you have to pinpoint those stocks and go for it. Don’t go for metal but go for the coal block allocation and mining because not many are going to bid for it and it is going to go very cheap over the long run. That is where the play is, coal blocks, the companies which are going to grab the coal block rather than a pure metal plays.