Any positive news by the government will definitely cause a short-term buzz of buying in the markets taking indices to its 50 percent retracement levels of 11,450, Umesh Mehta, Head of Research, SAMCO Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Q: It was an eventful week for Indian markets. The S&P BSE Sensex is back above 37,000 while the Nifty reclaimed 11,000. How are markets likely to pan out in the coming week?
A: Since there are no major events awaiting the Street and all the local and global factors such as trade wars, currency, etc., have been factored in, markets will move on speculations.
There are hopes that the surcharge tax on FPIs will be reduced but if it happens or not is anybody’s guess. And if it does, markets will cheer and open up the gap in the next week.
Indices had fallen by around 10 percent in the past two months and therefore this bounce-back was expected.
There is a higher probability that markets will try to attain 11,450 levels which will act as a strong resistance for Nifty as the government is also taking measures to revive confidence in the economy.
Q: There are many news reports circulating around the removal of tax surcharges on FPIs, FinMin taking stock of a slowdown in India Inc., and possible recapitalisation of PSU banks from September. Could these or any one of these triggers a relief rally in Indian markets?
A: Any such positive news by the government will definitely cause a short-term buzz of buying in the markets taking indices to its 50 percent retracement levels of 11,450.
But, there is a possibility that this will not sustain to break new highs and instead the medium-term trend will continue to be downwards.
Q: What is your call in the rupee amid rising fears of currency wars?
A: Given the ongoing trade war between the US and China, there is a lot of volatility in the currency market. Even though the trade war issues are factored in, the Indian Rupee is expected to depreciate further and then consolidate in the range of Rs 70 to Rs 72 per dollar.
Q: Morgan Stanley highlighted in its report that a bottom is in place for markets. What are your views and what would be your strategy?
A: Even though there is super negativity on the Street, we believe that the pain isn’t over just yet. A bounce-back was imminent given that the markets had fallen one-side.
The bounce-back is likely to retrace at least 50 percent of the fall and face resistance at levels of 11,450. Investors can get into selective quality stocks.
Certain sectors like auto, however, will give good opportunities to sell on a rally in order to exit till there is further clarity.
Q: Are there any stocks which could benefit the most from revocation of Article 370 from J&K? Attached a report.
A: Revoking Article 370 from J&K is a bold move by the Government and this will boost investments in land and infrastructure in the union territory.
But, the stock market will not have any material impact as most of the activity in the region was by unlisted companies. There can be higher scope in the real estate and infra sectors to win orders to build highways, expand and construct dams.
Certain names such as NBCC, L&T, IRB Infra, etc. can be kept on the radar as they have comparatively better chances to benefit.
Q: Credit risk funds recorded outflows of Rs 2,695 crore in June, according to data released by the AMFI, while equity funds saw inflows of Rs 8,092 crore in July, up 6.7 percent month-on-month. Do you think the spillover effect equity funds in the near future as well?
A: Both cater to different categories and the target investors are different. Credit Risk funds outflow is but natural as investors have now realized that risks in such funds are far more than normal debt funds and therefore given that realization, the shift from such funds is happening.
Equity inflows/outflows have its own hot and cold issues which have got nothing to do with credit risk funds.
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