The Indian market Thursday continued its sharp fall with benchmark indices hitting new 2015 lows. The Nifty cracked 8000-mark intraday, dragged by banks and oil stocks and the Sensex closed at 26599, down 118 points.
Speaking to CNBC-TV18, Sunil Garg, JPMorgan said that Nifty support must come in at 7500 but there can be downside risks to 6800. According to him, the FY16 earnings too have a downside estimates. However, the long-term structural story for India remains intact, he added.
“Do not believe for a minute the India structural story is over,” he said.
Garg further said that weak trends for banks will continue in coming days but select IT and pharma stocks look attractive. He believes IT stocks are holding better and are likely to outperform. Garg is also bullish on a couple of metal stocks that are looking good after the recent correction.
Below is verbatim transcript of the interview:
Q: What is the view now on India? We just read your column saying that you expect support around 7500 but you wouldn’t be surprised if things dipped even below 7000. What are the odds that things can get that bad?
A: First of all the odds are reasonably high. The trend has shifted down and if you look at the fundamental causes here, clearly the earnings expectations have been peered back and this is for the FY15 numbers. Even FY16 numbers have downside risk to earnings and I guess we are also seeing a little bit of risk off across many markets.
We have seen a pretty hefty pullback in places like China, there is some concern about bond yields moving up, oil has had a bit of a rally. So, confluence of factors and just technically I think, the market definitely looks like in a downtrend and has more downside at this stage.
Q: Clearly, the downslide in India started with the up swing in crude. Do you think crude will go to USD 70/bbl or stay above that and to what extent will India be impacted?
A: On a headline basis, the crude movement is a negative impact with the currency depreciation that amplifies the negative impact on the oil prices going up.
Our house view is that oil is range bound and it is not showing dramatic moves or was not going to show big dramatic moves up or down. However, we are not looking for oil to collapse all the way back. So, we think there is definitely a headwind created on that.
The other factor which is definitely worth watching is what is happening with treasuries. The correlation with treasuries in the Indian market has been inverse and pretty pronounced at that. So, that is another global macro variable which is worth tracking at this point.
We have seen a fairly big spike in treasuries in the last week or so. So, it is easing off a little bit right now as we speak but that is a headwind worth focusing as well.
Q: To discuss the trend a little more – is this a global summer correction that we are heading into or do you think that India is losing money to other markets like China and Korea and will continue to do that in the near term?
A: We have seen FIIs selling in the market so there is a bit of a risk off trade. If you look at global positioning, I think India has been an overweight market and it is fair to say that the rally that took place in China in the last few months has the magnitude and the speed of that has definitely got the investment community a bit by surprise.
There is a bit of a rotational element that is going on but there is an overall risk off tendency creeping in, call it the sell in May story or just the macro variables which are alluded to accommodation of those. So it is not just that money is coming out of India and going into China. We have seen a big sell-off in China as well. So there is a bit of a risk off element that is weighing in as well.
Q: When you say the odds are high - are the odds are high only for 7,500 or are they high as well for that sub-7,000 mark?
A: Ultimately when you are looking at technical, the speed at which you go to a level also become a factor and how the trend is going to shape on from there. I am just flagging it at this point that there are downside risks that could be meaningful. So I am not inclined to go in, rush in to say let’s buy the market because there has been a dip but be very measured and selective.
The trend in the banks has been weak and that’s something which could continue for a bit as well. At this point the best way to play this is to stay with the trend with the knowledge that there are meaningful risks on the downside.
Q: Would there be any place to hide, would IT be that place?
A: IT definitely is holding up a lot better. Directionally, if the market is coming off then all the stocks come off but if IT is going to be in outperformance mode particularly with the currency doing what it is doing – that’s a place some of the pharmaceutical names would look attractive.
I think some the material names have started to look attractive and I do not want to go into single stocks but some of the beaten down metal names have started to look attractive and that’s probably in sync with some of the commodities move that we are seeing in some of the global stocks as well.
Q: You spoke about the downside being around 7,500, the first support. What about the upside? Is the Indian bull market over or is this just a correction in a structural bull market and we will resume it once risk off tendency wears off?
A: My note definitely says that I do not believe for a minute that the India cyclical or structural story is over and if you think about it, this market been going hard since six months, even before the year’s may elections and there is a lot of expectations build in and the process of coming out of what was a fairly deep cyclical downturn and some of the reforms that are being initiated.
The result of that takes time to come through. So the earnings cycle is not there in the FY15 numbers and it is debatable that it is going to be fully seen in the FY16 numbers but some of the reforms that are talked about and hopefully being put into motion is cannot lead to ultimately a much better, more solid sustainable supports.
The long-term story both cyclical and structural is absolutely very much there. It is a question of trying to get in better levels when you play the market.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
