Independent market analyst Girish Pai expects the Nifty to remain in the 6500-5500 band up until the general elections in April-May of next year. “We will see markets are fairly firm but I think come April-May of 2014 you are going to see a binary event, which will probably lead to a peak and then market will cool off towards the second half of 2014,” he told CNBC-TV18.
Below is verbatim transcript of the interview
Q: What do you make of the last two days? We had a bit of a scare, and for two days, we have seen quite a bit of gains for the market. Do you think in hindsight the correction was a buying opportunity? Going forward, what is the call on the market?
A: You have to look at the broader perspective on equities. Equities, as an asset class, is a non-linear from a return perspective. It delivers returns in big spurts over limited periods of time. There are periods of time when the indices do broadly nothing, whereas there could be sectors and stocks, which probably would be in bull markets of their own in one sense.
We have been in this space probably for the last four-five years. We have seen Nifty trading in 5,200-6,200 band for the last 12 months. That is where we will also be in the next six months or so until we get to the election time in April-May of 2014, though the band is probably going to shift upwards largely from the view that we are going to probably start concentrating more on FY15 earnings. So 12-15 times FY15 earnings will probably give you a broad range of 5,500 to 6,500 kind of Nifty range. That is where we will probably trade in.
I think market should be trading in the upper half of that band probably because from a quantitative easing (QE) stand point. I think Janet Yellen is going to be far more dovish than was expected of the previous Fed chairman. I would think that from a political standpoint, things seem to be moving at least momentum seems to be in favour of National Democratic Alliance (NDA) forming a government in 2014.
So that is the way I see it. But if I look out into the next one year or so to 2014, we will probably see a peak in the middle of 2014. That is the way I see it. So we will see markets are fairly firm but I think come April-May of 2014 you are going to see a binary event, which will probably lead to a peak and then market will cool off towards the second half of 2014.
Q: Given the trading range that you foresee for the markets every time you think we head towards our previous record highs of 6,350 etc, you would recommend traders to take profits?
A: As I said, I think the key thing is what we are going to see as a result in the elections of 2014 April-May, it is going to be a binary event, so if you do see a non-stable, non-decisive government come into power, you are going to see a very sharp sell-off.
On the other hand, if you do see a stable government come to power and the markets are expecting or hoping for a NDA government coming to power then probably we could see at least 10-15 percent increase from 6,500 levels that I talked about. So it is all dependent on what turns out as a result in that particular event.
I talked about a peak in the middle; I think there are two things which are leading me to that particular point of view. I think 2014 is going to be probably a much stronger year from a gross domestic product (GDP) growth perspective for US versus 2013 if you look at consensus expectations on growth for 2014 for the US, it is somewhere in the region of 2.6-2.7 percent. It is almost like 100 bps higher than the growth that market is expecting in 2013.
Going into the second half of 2014, concerns on monetary tightening in the US are going to be probably far more hiked in than they are right now maybe the quantum of tapering is going to probably increase and the other thing is people are probably going to talk in terms of interest rates not in terms of QE tapering by the time we get to Q4 of 2014 when that is going to happen. That is if the current expectations on growth turnout to be true for 2014.
The second is on the domestic situation, there is expectation that the next government is going to take a lot of decisive action once it comes to power. The key thing that the government has to address is whether it wants to give a sharp pain to the economy to start with and then go into a pretty strong and sustained growth towards the second half of its tenure or does it want to not give pain to the economy and keep it growing at maybe 4-6 percent instead of a potential 7-8 percent that it can potentially give if it were to take that bitter medicine in the initial part of its tenure.
These are the things that the market probably is not anticipating right now. So even if we do see a positive outcome in the elections in 2014, the execution of this strategy, the execution of the reforms are going to be pretty critical and if the government does bite the bullet and take some very decisive steps, we are going to see far more severe pain in 2015 than we are seeing now but it will set the stage for much stronger growth beyond. So that is something that one needs to watch out for.
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