CNBC-TV18 consultant Udayan Mukherjee believes it is a tough task to stay positive in the current market, given the slew of weak corporate earnings in the past few days.
It is very difficult for an investor to stay bullish on the market right now given the slew of weak corporate earnings in the past few days, says CNBC-TV18 consultant Udayan Mukherjee.
In an interview, Mukherjee says the market rally is capped at 8300-8400 and infact the Nifty could retest lows seen in September.
"Not too many sectors have delivered and earnings are just not supporting the market. I will be very surprised if there aren't any significant number of downgrades," add Mukherjee.
On the other issue hogging headlines the past week, Mukherjee says the Bihar results will be no game-changer, even if the NDA doesn't win. There will only be a sting of disappointment , but that's all, he reiterates.
Below is the verbatim transcript of Udayan Mukherjee's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: We did see a very strong resistance coming in at 8,300. Are we now spoiling for a lower low or do you think that liquidity will keep us in a trading range?
A: It is very difficult to be too bullish or too bearish on the market right now. The moment you start leaning too much in one direction, you have got countervailing forces which come in.
I know the earning season has been quite bad and it is difficult to pick out very positive straws from the earning season over the last one week and generally we have probably come to the end of an emerging market rally or a risk rally that panned out in October, I think what had happened in the end of September is that everybody had gotten too bearish when the market went down to 7,600-7,700 levels.
A lot of the stressed sectors like metals, real estate etc had got beaten up maybe more than they deserve to in the near-term and what we saw was a good pullback triggered off by the Fed's pause, which is what panned out into most emerging markets, panned out into most of the beaten down sectors and I think that was the rally that we saw in the month of October. I think it has come to an end now at around 8,300 on the Nifty.
Whether we go back and stabilise in a range of 7,800-8,300 in the near-term or we go down lower to retest the lows that we made a few weeks back that will take one step at a time but looking at the earnings and the way things have panned out, it is quite difficult to become too bullish at this point in time.
So yes, to answer your question for the time being, 8,300-8,400 is the top for this market. The lows we will figure out but there is a good chance that we will probably first go to 7,800-7,900 and try and stabilise in that 400-500 band for the Nifty but if earnings continue in the same way as they have been over the last one week then it is not impossible that we go back and retest the September lows.
Sonia: This quarter around we have seen more losers than winners in earnings season as you mentioned. Even in some of the best names whether it is Axis Bank or Lupin or Larsen and Toubro (L&T) and these are stocks that are key holdings in many portfolios, do you keep the faith at a time like this and use it as an opportunity to accumulate or do you step back a bit?
A: I am not in the camp which is seeing a lot of green shoots in the earnings yet. You have to be very hopeful to say that what has come out of this earnings season is more positive than negative. If you look at every sector from infrastructure to consumers, even banking, the frontline IT pack with the exception of the pharmaceutical pack -- there too there have been a couple of glitches -- I don’t see too many sectors which have delivered the goods. In fact I would be surprised if there are not more downgrades at the end of this week from the earnings calendar overall. I think the Nifty and the Sensex earnings per share expectations might also have to be scaled back and that is the problem with this market.
You have these periodic tactical rallies because of global and liquidity factors and then up comes in earnings season which reminds you that the economic change, which the market is trying to price in periodically is just not happening. So you can be hopeful and bullish and say it will happen in next quarter, it will certainly happen two quarters down the line. However, what is happening on the ground is that with every passing quarter, you are having to push back that expectation saying one more quarter it did not happen, so maybe it will happen two quarters down the line. There is no problem with hoping. It is fine to be optimistic.
But if you are realistic and if you are taking on board the numbers as they have come out, it is very difficult to be very optimistic at the end of this earnings season. Therefore, the Nifty is struggling to get anywhere close to the highs it made earlier in the year. Periodically in June, July and August we heard a lot of people on the channels saying be prepared for new highs once again this calendar. The Nifty has made a couple of attempts in that direction but is faltering because earnings are just not giving it the support it requires to get back to that 9,000 level.
Yes domestic liquidity is keeping it supported at a certain level around 7,600-7,800 or 8,000 but upsides are limited by the fundamental backdrop.
Latha: Just now we had Moody's flash coming in saying that they have upgraded the outlook, not the rating, on Indian banks to stable from negative. That came from the blue because the banking numbers have been quite bad. Your sense, will that do any positive at all or is Bank Nifty exactly the one to be avoided?
A: I wish I could be more optimistic about the banking space. Having looked at the numbers this time around and the wrinkles which have cropped up in even some of the bluechip names like Axis Bank, I think valuation expansion from here is a bit of a challenge for the banking space. I am talking about the private banking space because public sector banking is still very beleaguered.
There is a debate going on in the market right now. For the longest time we have said, here is private bank and here is a public sector bank and the two operate in very different universes. However, now looking at the Axis Bank numbers, I think the smallest suspicion that maybe the asset quality pictures are not that widely different between the two sectors and maybe the private banking universe is being a little bit more artful about how they have put out their asset quality picture that is a brush with which you should not paint every private bank admittedly. But first hint of suspicion that maybe underneath that calm surface of the private banking universe, there might be some unstill waters and that has a royal sentiment a little bit.
To talk about the Moody's report, what you mentioned earlier in your commentary, the fact that the operating environment going into the next couple of years might be quite challenging in the light of the new payment bank licenses. I read a very nice piece that you wrote in www.moneycontrol.com recently about it and I agree with very large parts of it. So I think looking at that environment, looking at the kind of the asset quality picture which Axis Bank came up with and the stressed asset picture, which ICICI Bank also unveiled -- those are numbers which are not as bad as Axis -- I struggle to think how there could be any serious valuation expansion that might happen for the private banking universe under these circumstances. So Moody's might help the sentiment for a bit of two but I think the Bank Nifty at best moves with the Nifty but does not outperform it in any significant manner.
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