See chances of mild surprises next week: Daiwa MF

David Pezarkar of Daiwa Mutual Fund feels investors are taking on more of a risk-on kind of a trade wherein there were too many of the negatives getting already priced in.

"There was too much negatives essentially and now it feels as if there is some sort of a resolution to the European crisis that is the main underlying cause of this rally and it looks like it might continue for sometime," he said.

Below is the edited transcript of Pezarkar's exclusive interview on CNBC-TV18. Also watch the video.

Q: What do you ascribe this new found confidence to for the market over the last week or 10 days?

A: It's more of a risk-on kind of a trade wherein there were too many of the negatives getting already priced in and then we had the initial trigger of some sort of a resolution to the European crisis. That was the first step and since generally the market was heavily short in terms of the speculative positions or at least the long only investors did not have too much of an aggressive portfolio or they had not invested much. So partly it was being caught on the wrong foot. There is some follow-on buying as well. So it is a mix of all these events.

There was too much negatives essentially and now it feels as if there is some sort of a resolution to the European crisis that is the main underlying cause of this rally and it looks like it might continue for sometime because mostly investors are sort of defensively positioned. So they will rush to change the allocation of their portfolios.

Q: Next week will be crucial because we have a very important earnings coming in from the IT space. Tomorrow, we have Reliance as well. How are you going to approach earnings season from here?

A: There is too much of pessimism already built in. There is a possibility that there could be some mild surprises. People know that interest costs are going to weigh on companies that the rupee depreciation is going to hit companies with high forex debt levels.

But the extent of the damage that all these things will cause is not known and also people have underestimated the benefit that they will give to exporters. These two things are likely to counterbalance. All in all, in terms of the expectations, I am not saying that we will have an extremely strong earning season.

In terms of the expectations, we might be in for a bit of a positive surprise. Anyway the sales trends remain quite robust. Sales expectations anyway are upwards of 20%. It is only the profits, margins etc, which are under threat.

A little bit of an upmove is likely to give an additional boost to the markets. Historically speaking, if you see markets in the pre-Diwali period, they have generally an optimistic note. So this might continue for this year as well.

Q: What are you expecting to hear from Reliance tomorrow and at this level on the stock? How are you positioned?

A: I would refrain from giving individual stock comments. But on the whole, I would expect this earnings season, like I said, to be not that much of a disappointment.

We have seen defining margins actually being quite strong and the companies that would benefit from the rupee depreciation would also counteract to the other ones, which have a high interest costs, which might see some sort of a negative surprise.

Overall, I would I think that we would be a tad positively surprised from this earnings season.

Q: A lot of the market move has come, courtesy the global support. We have two important events that are lined up in the next fortnight. How much credence will the market give both of these events in terms of the next move that the market will see?

A: They are quite important. The market is entirely dependent on the global sentiment and any disappointments there are likely to cut this rally short. Conversely, since the market has been quite strong, it is quite possible that the market would want to correct a little bit.

But yes, these two events are extremely important because the market is just getting out of its extreme fear kind of zone. If there is some sort of a disjointed statement coming out or if the market feels that the uncertainty over the resolution over the European debt crisis is not clear then the market might want to retrace some of its recent gains.