Mkt consolidation a positive but headwinds continue: Blue Ocean

The ongoing consolidation in the stock markets is a positive but till there is global stability, both in terms of macro events as well as flows, some volatility can be expected, says Nipun Mehta of Blue Ocean Capital."We may not see a major 8-10 percent fall but a further correction can be seen," he told CNBC-TV18 in an interview, adding that the Union Budget would be the key event to watch out for.In the interview, Mehta also discussed a number of stock and sector strategies.Below is an excerpt of the transcript..Q: We have seen consolidation today. Nothing much to panic and this is coming in after a massive fall. But the million dollar question or the several crore rupee question, is the worst of the selloff over?A: When you look at markets or the volatility that they have seen over the last several trading sessions this kind of consolidation is definitely positive as far as domestic markets are concerned. A huge amount of global headwinds continue whether you look at it from a point of view of crude oil price movement or the geo political tensions or geo political implications it has. China macro data, China currency movement and volatility. So, all of that is something that is going to continue to play on domestic equity markets. Till there is global stability in some of these asset classes you might not see a fair amount of stability coming in as far as domestic markets are concerned. Even as far as domestic issues are concerned you haven't seen the best of the results. Some of the results have been really good but overall a mixed bag of results. The initial set were good. Generally that is the case where you will see the last leg of results not being very encouraging and that is what you are seeing as far as the December quarter results are concerned.Foreign Institutional Investors (FII) selling has been fairly intense. In January itself you have probably seen USD 1.8 billion worth of FII selling happening and what is sustained is only domestic mutual fund buying or domestic institutional buying that has sort of helped reduce the fall. So, probably we might not see another major fall from current levels if you look at domestic markets unlikely to see another 8-10 percent fall but probably a further correction is something that we could potentially see given the kind of global volatility that you might continue to see. But the finance Budget is something that the markets will look forward to in February and that is something that could potentially take markets marginally up. But overall even the upside to an extent is capped when you see the kind of global volatility that kind of persists today.Q: Today we saw an interesting divergence. Good rally in some of the public sector undertakings (PSU) banks today but looking at earnings and some of these concerns that are coming out because the RBI wants everybody to clean up their books by March 2016 how would you play banks now because even some of the biggest of blue chips from the private sector space are throwing up certain questions here and there?A: As far as the PSU banks are concerned I will still be cautious. After the RBI report on the review that is clearly playing as a concern as far as the entire banking space is concerned. We have seen some pressure on margins from the initial set of results that have come in as far as private sector bank space is concerned but there could a sort of tailwind in terms of public sector banks in terms of recapitalisation that the government has been talking about but overall the corporate debt restructuring (CDR) issues, the strategic debt restructuring (SDR) issues that are facing PSU banks is something that will continue to put pressure on the kind of provisioning that is there. As long as there is greater transparency that comes in probably in provisioning you are likely to see the continued pressure and spaces like metals, infrastructure, capital goods are clearly not showing any signs of a turnaround in terms of the provisioning that the PSU banks are needing to make. So, till there is that kind of either greater transparency or an indication that there is a potential turn around that could come around in terms of non performing loans (NPLs) you are likely to see continued pressures. Valuations are attractive which is the reason once in a while you do see on expectations of improved results the kind of bounce that happen as you saw today in PSU banks but looks questionable in terms of sustainability till there is much greater clarity that needs to come about for larger PSU banks in terms of the provisioning that we have been seeing.