Is this another 2008 for Indian market? Jaipuria discusses

The Indian equity market is tumbling against the backdrop of global stock market turmoil and falling oil prices. And the biggest question in the minds of most investors and traders is, is this a repeat of 2008? There indeed are some similarities between today's market and 2008, but the major difference is that the stress now is not as much in the US banks, but lies in the Chinese banks. The correlation between Chinese banks and global markets is not as high as it was for US banks, says independent market expert Jyotivardhan Jaipuria. "Probably, the repercussions on markets globally will not be as strong as it was in 2008," he adds. On banks, he says: "The RBI demanding more transparency and cleaning up books is a very global phenomena". "Over the last one year, most of the banking stocks, whether it is in India, Japan, China, or Europe, have underperformed by a massive margin relative to where the markets have gone down — in most places they are down 30-40 percent in a year," he says.Meanwhile, Siddarth Bhamre, Head Equity Derivatives, Angel Broking, sees Axis Bank to be strong from a fundamental perspective. Below is the transcript of Jyotivardhan Jaipuria and Siddarth Bhamre's interview with CNBC-TV18's Anuj Singhal and Latha Venkatesh.Anuj: Is this a repeat of 2008 or is this just one of those false scare and actually good buying opportunity?Jaipuria: There are some similarities to 2008 obviously. Markets have fallen off a lot and that worries. I think the one difference between 2008 and now, is that 2008, the big stress point was in the US banks and US banks are very correlated to what happens globally. This time probably the stress is not as much in the US banks, probably the biggest stress I would say is in the Chinese banks whose correlation to the global markets are not as much as they were for the US banks. So, that is the hope that even if something goes wrong with the US banks probably the repercussions on markets globally will not be as strong as it was in 2008. There will be that percussion mind so it is not going to be a very easy phase but it won’t be as strong as it was in 2008. Latha: The more difficult question really is what are you smelling by way of perhaps end of capitulation. Are you getting a sense that long-term investors should enter or even for long-term investors there are way more mouthwatering valuations waiting to come?Jaipuria: It is always tough to call a bottom till after it has gone and we are long way past it. However, normally there are two things which happen which make you think that okay this is somewhere we are coming close to bottom. The first is either we get real sharp sell-off in markets and we have probably seen that in the last two or three days, we have seen the midcaps start to crack, we have seen stock prices come down. So we are somewhere starting to get that capitulation but it doesn’t feel like this is the end of that capitulation. The second thing which typically happens is market stops panicking when central banks starts panicking. We see a major central bank action which we have not seen so far, I think partly because the US is still in a comfortable place. I think probably where we may see some move come in is Japan. If you see, what Japanese people did for the last two years has all got unwound now, all the efforts to weaken the Japanese yen, we are probably back to where we started this whole thing at. So, probably one has to see over the next few weeks, I think we will see an effort to weaken the Japanese yen again. If that succeeds then maybe that is some sign that the central banks have started to panic. However, otherwise, at the moment we are not seeing, I know you in the introduction you said we see something like 2009, it doesn’t seem to be because US seems to be in a very comfortable position at the moment at least, there is no sign that they are going to panic and we will see the Fed take some very dramatic action.Anuj: A lot of this fall is technical in nature as well. Two or three data points stand out for me. The FII selling in stock futures and so many stock futures trading at a discount and also the kind of Put buying that we saw all through the week. Your sense of data and your own call on where the market is headed from here on? Bhamre: I am looking data slightly from a different perspective this time. We are seeing this correction from January 29 from 7,500 plus levels to sub-6,900 levels. Now, if there is a Put buying which has happened more, then Put/Call ratio should have gone up. But Put/Call ratio has corrected from 0.89 to 0.79. So, this clearly suggests that Call built up is more. Now, we will come to it, whether it is Call selling or Call buying.I believe a lot of people are talking that this is more to do with, instead of portfolio selling, it is more of F&O shorting which is taking this market down and I have a slightly different opinion there also. I believe this is more to do with sentimental selling rather than technical selling. Why I am saying that, today, as you guys are rightly discussing that the three main reasons which are clouding over market participants mind today is European Bank issue, China slowdown and probably, from the last 2-3 days, this long-term capital gain tax would go off. I do not want to indulge that my opinion is not matching with the market opinion. But if you look at FIIs data and that is what we closely follow. FIIs have been buyer in index futures in February series that is from first day of fall. 2,500 crore of index futures bought with rise in open interest. We were talking about that there is more built up in Call option. They are buyer of 10,000 crore in Index Options. So, I am not saying that they have bought Call options in very big way but then Call option open interest is increasing and FIIs buying figure with rise in open interest in Index Option is 10,000 crore. So, this selling is not happening because someone is shorting big time in derivatives market. It is more to do with sentiments. As you guys rightly pointed out, buyers are not there and there is some selling happening. So, I will not paint very gloomy picture because of F&O data. I do not know, we are in bear market or this is correction in bull market, I am not qualified to say that, but this is clearly not happening because of F&O, that I can vouch for.Latha: How do you play Monday given the data that you have?Bhamre: Data suggests is should not short this. I have gone wrong, I was saying that at 7300-7200 I was saying that we should not short this market. We missed out on the opportunity but so far data is not suggesting, I have not gone through today\\'s bhav copy and today\\'s FIIs data but whatever we have seen during the day options build-up is more happening in 7000-7100 call option. So, if everybody is talking that we are heading towards 6300 or 6000 levels then FIIs should start shorting. FII should start buying lot of Put options or if they are shorting index futures then they should buy call options. Today they are just buying call options but not shorting index futures. So, data is still suggesting not to short this market, there is good possibility that there might be a bounce here and there. I am not suggesting to go long but stockwise there were lot of strong stocks which have fallen sentimentally in this last two trading sessions. So, we have such stock ideas where on Monday or probably next week these stocks can do well.Anuj: I want to address the other big problem for this market. While it is easy to say that all this pain is global, you have to accept that a lot of the pain that played out was because of earnings. And, we have not seen any kind of earnings recovery. In fact, I might add that in certain pockets like banks, it is one of the worst quarters that we have seen. How do you approach something like banks or some of the other stocks where the earnings have been so disappointing?Jaipuria: I agree with you. My view has been that this whole pain has been global macro and India micro because it is not just global macro. Some people keep saying India is a very stable place in a relatively very turmoil world, but if that were the case, India would not be one of the worst performing markets among emerging markets like if we see year to date, India has not done well even on a relative context and part of it comes down to the fact that one, India has been a very over-owned market and so, we have seen people take money off and the other part is earnings are just not recovering. So, after Modi came and there was hope that we will see earnings recovery com in three quarters, four quarters down the line. But so far there has been no hope and this quarter, just like the last few quarters is turning out to be a quarter – it was generally expected – but again it is a quarter where we practically are ending up with no earnings growth. The second thing is like you touched on banks, and banks has been the area where people have been disappointed because partly what was happening in banks is just a reflection of the NPA build up which was there, but which probably was not really reflecting in the numbers where banks were not showing that as NPAs. And now, with the RBI demanding more transparency, probably we are seeing, what I would say, a cleaning up of the books happening. So, in that sense it is good, but it is a very global phenomena. Again, if we see banks globally, over the last one year, most of the banking stocks, whether it is in India, it is in Japan, it is China, it is in Europe, most places, banking stocks have underperformed by a massive margin relative to where the markets have gone down. In most places they are down 30-40 percent in a year.Anuj: You have two buy ideas for next week?Bhamre: Banking, which is like very curse sector at this point of time, we have seen both from fundamental perspective as well as from technical derivatives perspective Axis Bank has shown strength, in fact yesterday the stock corrected significantly because market corrected more than 200 points, Nifty I mean, but if you look at case based volumes, they were not there and in F&O there was hardly 1 percent build-up with average volume and today the stock has shown good upside with huge volume in case market. I strongly believe that people may reduce their exposure in banking sector but within banking sector they will definitely increase their exposure towards stock like Axis Bank. So even from investment perspective and trading perspective the stock is a good buy. As of now I am expecting Rs 419 as a target, fix stop loss around Rs 373 and go long over here. The other idea which is conservative idea is Biocon. We have seen stock significantly correcting from higher levels. Volumes have been decent but we haven\\'t seen any shorting happening in F&O. We have seen unwinding of long positions. So generally a stock corrects because of unwinding and not because of formation of short position, it\\'s a good stock. This stock has good support around current levels, around Rs 430-440 zone and today also from lower levels; the stock has bounced back along with the market. I believe this bounce back may sustain. I do not have very aggressive price target but I am expecting Biocon to move towards Rs 475 odd levels. So fix stop loss around Rs 430 and go long in Biocon. We have already suggested Axis Bank to our clients, so that is a biased opinion.Latha: How much of your cash will you put in if you think it\\'s time to enter and where?Jaipuria: My view is probably very near term we have hit a bottom, so if you look at very tactically over the next few weeks, we will probably see a bounce coming in the market and if you can play the bounce then you should. In such sort of bounces it\\'s normally the stock which have fallen the most which go up more than what investments stocks would go up. However, if you look at pure investment then my focus would be - one, on urban consumption because of the Pay Commission which will play out in the Budget. So there autos among the bigger sector is the best thing to do. I would also start looking at some of the rural stocks because there will be something like irrigation in the Budget and rural area. We have had two bad monsoons, so hopefully we will not have a third bad monsoon this time.The other area I would focus on is pharmaceutical because it is a hedge against the currency and last, some select sectors like the road is something which I still like because that is a big task for the government, things are picking up there. Therefore, roads and railways are niche midcaps I would be focusing on.