If October-December quarter (Q3) results are better than the previous quarter, and if market sees a burst of liquidity, then it will find momentum to go bouncing till Budget, says Sanjay Sinha of Citrus Advisors. The mood will soon change as stocks will see serious corrections.
With Sensex and Nifty continuing to limp, many onlookers are wondering if equity market is going through a correction. Speaking to CNBC-TV18, Sanjay Sinha of Citrus Advisors said the market should have consolidated much earlier. In the absence of a trigger for the bond market, which hinges on a rate cut by Reserve Bank, the market will remain in consolidation phase till third quarter numbers start coming out, he said.
If October-December quarter (Q3) results are better than the previous quarter, and if market sees a burst of liquidity, then it will find momentum which will loftily go ahead till Budget. Real correction, of around 10-15 percent, will happen after Budget, Sinha suggested.
He said IT sector has been surprising market with strong set of numbers and performance despite headwinds. Hence, from valuations front, it will remain favourite among investors until new sectors show promise.
From a 6 months perspective, Sinha says oil and sector will see some pessimism as sharp fall in crude prices is bound to throw government’s calculations haywire. Beyond that, things should improve with the NDA government dismantling the APM.
Below is the transcript of Sanjay Sinha's interview with Anuj Singhal & Ekta Batra on CNBC-TV18.
Anuj: It has been a strong run but we are getting some sense of consolidation, I won’t use the word correction yet because we have fallen about only 200 points from the top for the Nifty which is less than 2.5 percent right now. So, what is your sense, could this be the beginning of the first real correction that our markets see or would this be again a shallow consolidation and the markets would be back to all time highs in no time?
A: In my opinion the true test of the market would be when it faces the January quarter results. In my opinion the market would have corrected in the month of November itself after we had seen the state of results coming out in October which did not by and large meet the markets expectation.
This recalibration did not happen in the month of November because we saw the bond yields come down very sharply in that month and we saw the PSU banks rally exceedingly strong and that was the one which kept the market afloat. There were a few smatterings from some other sectors which also supported.
Now, the bond yields have come to level where they will be stable from some time before the Reserve Bank of India (RBI) announces the rate cut. So, in the absence of a trigger from the bond markets, the market doesn’t have much to look forward to. So, I feel that this long due profit taking or retracement of the market which would have happened in November is now happening in December.
However, in my opinion this may not last too long because there is still a ray of hope that the market has that maybe the January results will be better which if you ask my personal opinion the market may not actually be rewarded with very good results in the current quarter also, the results which will get announced in January. In which case, if we have a strong burst of liquidity and if we have a rally which picks up speed towards the end of the calendar year which normally happens towards the end of the quarter, end of the calendar year the markets do tend to pick up a little bit.
So, this momentum may carry the market up to the Budget and the real correction, when I say correction I mean about 10-15 percent correction of the market may actually happen post Budget.
Ekta: What would your sense be on the entire IT space now?
A: We have fair amount of headwinds as far as the corporate performances are concerned. In that background by and large the IT sector has been either living up to the expectation and in a few cases also surprising the market by strong numbers.
So, in the absence of any other positive triggers from the valuation front or the performances front, IT might still continue to be the favourite of the market for the next two-three quarters till the time that the rest of the sectors begin to pickup speed in terms of corporate performance and then money then gets reallocated to the other sectors.
So, for the next 9-12 months it would be one of the sectors which would continue to be favourite.
Anuj: What is the call on oil stocks now because the PSU ones in particular because you have seen Brent prices now fall to USD 65 what would it do to the arithmetic and how would it impact stocks like Oil and Natural Gas Corporation (ONGC), BPCL? Would you still be buyers of these stocks?
A: If you look at the near term horizon and I would say near term horizon would be three to six months horizon, one may possible see certain amount of sideways or downward movement in these stocks. However, beyond that there is room for optimism there. Why I say that there is some pessimism in the short-term is – the fiscal mathematics of the government is going to go haywire in the current calendar year with the crude prices dropping.
We may be rejoicing that, as an importing country we stand to benefit but it causes a fair amount of damage to the tax collections of the government also. So, in a year in which we have already touched 90 percent of the fiscal deficit number the government may not relax its strong hold on the subsidy burden which directly it may do so by stripping off the profits of the oil companies or indirectly by raising the excise duty as they have done last week.
So, in this background I would not be very optimistic on the outlook of the oil and gas companies in the near-term. However, beyond that with the underlying policy approach of the NDA to be dismantling the administered pricing mechanism so on and so forth, things should begin to improve.
If you look at these companies on their valuation front, just don’t look at them in terms of their profit numbers even in terms of their book values and their dividend yields; they are fairly attractive otherwise also. So, once we have this uncertainty about the government greed to take away the gains from the oil PSUs things would be much better. That is why I said beyond six months it was much better.