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Nirmal Jain, Chairman, India Infoline said that the market is likely to remain lacklustre in December. He added that there are more chances of market going down. FIIs have sold but markets have sustained on domestic money. The market is likely to be rangebound with negative bias, he commented.

Most of the retail players are looking to buy in December. Fresh FII money is likely to come in January. According to Jain, the market is likely to remain between 18,000-19,000 in December.

Karun Mutha of IL&FS Investments said that a large number of Nifty options have been written. The Nifty was a good support at 5,500-5,700 where there was a good amount of put option writing.

Excerpts from CNBC-TV18’s exclusive interview with Nirmal Jain:

Q: What is your sense going into December? Will we move up or are the chances of a correction are higher?

Jain: A lacklustre market and chances of correction are higher, because if you look at global and Indian facts, all the political developments and global developments do not favour a bullish market to continue in this kind of an environment.

Bond spreads are widening. There are concerns on the US economy and subprime, that are surfacing everyday. So, these things will affect the flow of money in the market.

Also, in the recent past, if you look at the last couple of weeks, FIIs have been net sellers more or less everyday. But still, the markets have sustained at these levels, which is a tribute to local buying and retail interest. But markets should remain rangebound or can maybe correct from here. So, if you were to take a bet on upside or downside in December, I would say slightly lower and not higher.

Q: What is retail sentiment now, because there has been a bit of correction? Do you think retail is still strong enough to keep a midcap rally going or are they also getting fatigued, because of the lack of institutional buying?

Jain: Retail is a bottom up approach and most people are looking at opportunities, HNI clients, in particular, are looking for opportunities to buy in the month of December. Retail has to be segmented into various categories. There are intraday traders, small retail buyers and HNIs.

HNI matters more because although the number may be small, they have at least some influence on the markets and are looking forward to pick up bottom up opportunities in the midcap sector. They are now looking forward to the rally resuming in the month of January, when there are fresh allocations for FIIs and most of these issues will get settled.

Q: We have spent most of November in the 18,000-20,000 zone. Do you think December will also be spent in that kind of range? Would you expect slightly lower levels than that?

Jain: I would think similar levels or maybe 500-1000 points here and there. But close to 18,000-19,000 range will be what I would expect in December also.

Q: Do you expect midcap outperformance to continue in the November series? The midcap and smallcap indices have outperformed the Sensex by a wide margin. Do you see that continuing in December or do you think that kind of outperformance will be reined in?

Jain: In midcaps, investors will look for buying opportunities and there are quite a few stocks that will appear attractive this month, after a corrective or consolidation phase that we have seen in the last few weeks.

I think midcap indices may not show as much gain in the month of November, because there are some stocks in midcap indices that are very large, say Unitech. But other than that, it is a fairly large and broad-based index that way. So, midcap stocks will do well, but I am not very sure if the indices will show the same performance at the end of the month.

Q: What does the December series portend, the way we rolled over today?

Mutha: The day started with a big bang, taking off the global cues. In fact, we were comfortably up on the gap opening. Predominantly, this feature has been there because a lot of arbitrage positions, which were there in the market for the November series, were not really finding an exciting rollover.

Normally, arbitragers look at around 140-150 basis points on a rollover. But when you get 95-100 basis points on a rollover, they predominantly tend to sell these stocks into the market and get out of the arbitrage positions.

Precisely, in the last half an hour of the November series, Reliance, Reliance Capital, SBI and most the smaller banks and even the larger banks were not converging. There have been delivery-based selling, that comes in over the November series and which incidentally saw the fall in the market. But the rollover, toward the next months series, particularly the December series was really very good, where we saw almost 87% of the market wide positions being rolled over to the next month.

Now, the numbers would actually come in short but these are the broader market numbers, where we saw almost Rs 80,000 crore of futures positions being created in the next month or December series. The Nifty itself saw a very decent rollover of around 80%. It seems that it was predominantly a long rollover, when you see the December series of Nifty. That was quoting at almost 40-50 points premium in between.

Q: What do you expect to see in the December series for some of the outperforming sectors like power, energy, and oil, the ones that have run the hardest. Do you expect them to consolidate, correct in December, or to go to fresh highs?

Jain: The sectors to look forward to in December would be private banks like Axis Bank, ICICI Bank or some of the PSU banks like SBI. The cement sector has not performed very well in the last few months. However, the companies are doing extremely well and this quarter will be sort of a record quarter for them in terms of profitability.

Among largecaps, I would look at Reliance Industries and BHEL as two interesting counters because refining margins in this quarter are probably the highest; they are significantly up QoQ as well as YoY. In terms of EPS delta, RIL should benefit a lot.

BHEL is also increasing its capacity from 6 GW to 15 GW over the next two years. In their FY10 numbers, we will see a significant jump in their topline as well as bottomline. I don’t think the market has this fully factored-in. So, these are the two largecaps.

In terms of midcaps, I will look at cement as a new sector. Some of these stocks in capital goods, construction, and power equipment will continue to do well.

Q: What was happening in RPL today, it moved up 15% suddenly? Was there a short squeeze? What sense do you get here carrying into the December series for that stock?

Mutha: It was clear case of short squeeze happening on the RPL stock. In the middle of November series, there was a deep discount on November futures and that initiated a lot of reverse cash carry trades. You sell the stock in the cash market and buy the same in futures. Now, when these people want to again reverse their positions, they let the positions for November series expire and go back to the cash market and buy that stock.

In the cash market when a lot of stocks come in for buying on a single day, it would definitely run up. Particularly stocks like RPL where a lot of short positions had been created during the whole month series. This was quite evident in the way the November series was still quoting at a slightly discount to the cash market price. Eventually, it reflected and the stock had to run up almost significantly from the day’s lower levels.

Q: What did you read into the Urban Land Ceiling repeal news that came in and how would you approach the real estate sector now?

Jain: It won’t have any material impact on real estate because there is significant shortage of commercial land in Mumbai. 4,000 acres that will come from this will not make any significant difference. A couple of companies will benefit significantly from this. The top winner of course is Godrej Industries. They have a huge property in Vikhroli. The stock can be a multi-bagger from here. Another stock that I will look at is Century Textiles, which is a big beneficiary of this.

There may be small real estate companies that could benefit. I will look at these two stocks as buys if somebody wants to have a play on real estate. I do not see this as having any sobering down impact on real estate prices particularly in Mumbai as it will be too small an addition to make any difference.

Q: In the December series, what are the chances of the Nifty actually getting back and piercing those 5900-6,000 levels?

Mutha: The chances are not really that great because we have seen a lot of call writing happening at around 5900 and 6,000 levels. Almost a large amount of Nifty options have been written. The Nifty has very good support at 5,500-5,700, where we have seen good amount of put option writing. Almost 11 lakh shares on 5,500 and close to 9 lakh shares in December at the initiation of the December series. Broadly, it will play between 5,700-5,900 during the next month’s series.

Source: Moneycontrol.com