The recent market selloff is proof that valuations are rich and the market is overbought, says Prakash Diwan, director, Altamount Capital Management. He believes valuations are still stretched and there is still a chance of a 4-5 percent softness, particularly on the midcap side.
Diwan believes the market has already priced in the fact that the government may miss its fiscal deficit target of 4.1 percent. He says: "You can’t keep relying on oil forever. Infact oil prices also seem to be bottoming out… Won’t be surprised if oil prices shoot up 18-20 percent from here." He, however, says the market will be disappointed if the government doesn’t act on it.
Below is the transcript of Prakash Diwan's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: Is the correction over, was this just another one of those shallow quick corrections that we had and it was a great buying opportunity?
A: I agree it was a great buying opportunity but I do not know whether it is over or not. In the first place it was a reaction to overseas cues very clearly there is absolutely nothing domestically that could have given you some sort of an indication. It also reflects the fact that people are willing to sell in such huge quantum and in such rapidity given the fact that valuations are rich.
It very clearly proves the fact that markets are overbought, the market was trading at multiples otherwise you would not have seen 500 points on the Nifty go off in a jiffy. The bounce back has been equally sharp but that is probably because of the kind of change in sentiments overseas. If you really ask me the valuations still look a bit stressed with still room for about 4-5 percent of a softness in a market particularly on the midcaps.
Ekta: We have the midterm review which is going to be something that we would be looking out for today. One of the key things which possibly will be spoken about will be that 4.1 percent fiscal deficit target. Which is now looking more and more difficult to achieve easily? Is that something that will eventually way on the markets and will markets be perturbed if incase the 4.1 percent is missed?
A: If you ask me that is already been priced in when we had the trade deficit numbers also come through. That huge billion dollar deficit and thanks to gold imports we all know that it is kind of being plaguing us for a long time. So, till the government comes with the structurally new ideation on that or some changes in policy which help that you cannot keep on relying on oil forever to make things look better for you.
My sense is oil also is kind of bottoming out. You cannot expect oil to continue at these levels for too long. It won't be too much of a surprise if the time turns and oil actually starts shooting up from here and it could be 18-20 percent in the next month two months. The point is that the government will need to do a lot of things to take that up seriously. However, the market has already discounted the weakness in that position - 4.1 percent is definitely something that the market has priced in but it will be disappointed if the government does not react to the situation.
Ekta: Your quick thoughts with regards to gross domestic product (GDP) at 5.5 percent?
A: It is definitely a relief of sorts that it is within the band that Reserve Bank of India (RBI) had given. There is no surprises, no ugly stuff that has come through. I think it should be taken up in the right spirit, it is quite positive at least till now.
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