See Nifty in 5900-6600 range; hope rally over: Dalton Cap

Below is the verbatim transcript of his interview on CNBC-TV18

Q: Should we prepare for a double circuit in the market in May and therefore tank up, is it possible that we are going to get somewhere close to 7000 before the elections itself?

Most of the run in the market over the last one year has been on two legs. One was hope rally and the other one was FII flows.

Quite a large amount of hope has been met with the results over the weekend but quite often we extrapolate this to national levels which might not be appropriate to do because the anti-congress vote there is a significant claimant now. Earlier it was always thought that BJP is the biggest gainer of the anit-congress vote, but now that space is also occupied by AAP which means nationally it may not translate to many seats but in terms of percentage of votes that they may pull out of the anti-congress pool is significant. That might have an effect on number of seats BJP gets. 

Secondly these four states where state election results have come they account for less than 15% of Lok Sabha seats and they are traditionally they are strong for BJP, so how does it change position in UP, Bihar where swing is required from BJP to really make it big. Again in south of India it really doesn’t matter.

So I don’t think BJP are going closer to 270 seats from 170-180 seats because the pool of anti-congress vote will be divided. So that hope is not worth extrapolating.

Q: That is abundant caution that you are bringing to the table, but we have had pollsters who have got it right in outguessing the assembly polls, telling us that there is so much of a wave - these practiced viewers of waves or swings in voting are expecting or are not ruling out the possibility that there is going to be a wave movement continuing in all the Bharatiya Janata Party (BJP) stronghold states. So,whatever their arithmetic we are not discussing that at this point in time but the market could believe that a 210 or 200 plus for BJP is a possibility, therefore do you think is there a chance that we are going to sustain current levels and even build on them, is that possibility there?

A: Probably for 24-48 hours there will be a party on but after that I think it is going to be hard nosed analysis. That is where you see that even in terms of politics, doesn’t look like as if BJP is  going to be within touching distance of 270 seats and the sort of changes that BJP can bring about, what Narendra Modi can bring about would depend quite largely on his having very important say in governance.

Therefore, it is important despite some swing in numbers here and there unless he forms a government himself, it is going to be a much diluted version.

Q: That is post May version but pre May do you think euphoria can swing or do you think even there these hard nosed analysis will prevail and therefore we should only  look at 5-10 percent from there?

A: I think 5-10% is power for course, I don’t think it can be much bigger. The other implication is something that we should see that with the emergence of the AAP the possibility of the decision making in bureaucracy is going to be even more remote because governess is going to be an important issue and India is not a political establishment, a bureaucratic establishment and not exactly famous for transparency and integrity. 

The state of the Indian economy today is largely because of indecisions over the last one year and even if BJP may come with big majority for them to formulate a policy and implement is at least 10-12 months from now, and in that time there is no decision. At least till now there was some hope that some decisions would be taken and there would be returns but now there is no hope therefore why should they take the decisions and why should they get caught in some controversy later. This means, we are going to have more of indecision making for the next 10-12 months, which will have a lasting impact on the economy and to that extent turning around of the economy is going to be difficult.

So if you cannot foresee a turnaround in the economy in the next 10-12 months, I think the market might take a break from the euphoria that you have seen today or over the last couple of days.

Third important point is FII flows, which is a basis on which market has been running. However, after the statistics that has come out of the US there are many who think that taper can happen as in the next ten days. So, if taper does happen and with threat of taper, we had 1000-point correction last time in June-July, so there is certainly some scope for correction and the euphoria may not last. Also the fact that it is going to be arduous 10-12 months ahead with incentive for decision making, I think one should play the euphoria when it lasts but to hope that the euphoria will last for the next one year and 7000 will come even before the election unless there dramatic changes in between is a bit asking for too much.

Q: How would you play stocks now? Are you moving away from the banks taking out some money and putting into cyclicals or are you putting fresh money?

A: I think the way to look at it is has the growth momentum changed in this country, has the GDP number from 4.8 percent is likely to be more than 5.5 percent this year as some people claimed - very unlikely. Is inflation going to be under control after the weekend? That is unlikely. Is interest rate going to be softer anymore or is going to be dearer - I think the latter is true and on December 18 we will probably tighten interest rates. Is the taper likely anytime soon? I think it is likely very soon. So, these are the hard questions that you need to ask.

So with that in mind, I am sure whenever there is a sudden change in sentiment, the cyclicals are the ones which have been hammered out of shape for the last one year. So they are the ones that are likely to play out and that is what we saw today.

However, with the proper analysis, one would come to the conclusion that banking system is not going to be changing dramatically just because on the weekend, there was an election result. I think the NPAs will continue. There are companies which are unable to service interest, forget about installments, this is the state of affairs. The PSU bank needs huge amount of capital - if you take the stressed assets and if you take a probability on stressed assets being converted to NPAs soon, there is not much of a capital in the PSU banks. The demand for capital is huge. The government is likely to do some more divestments, so the primary market will be a crowded place.

I think the dynamics of the market do not suggest that one should change one’s allocations to where they were last week dramatically. It is not as if one should buy PSU banks in a big way now because nothing has changed on the ground. It is just the sentiment is taking it up a bit.

Q: You generally give us a range for this market, what would be the range for the market now for the next six-eight months?

A: I think the downside could be somewhere near 5,900. The upside may not be much more than 6,600 and 6,600 is a real peak.