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Pre-FOMC jitters gripped the markets. The indices open weak and traded inconclusively. Nervous traders pulled the Nifty 113 lower to 5,168, while the Sensex shut shop at 17,759 down 333 points. Oil and gas, realty, power and auto scrips were the worst hit counters.

Moreover, midcaps and smallcaps are still finding it difficult to attract investors attention. Both the indices closed with over 2% decline. The market breadth was negative throughout the day and the volume was also not very impressive.

In an exclusive interview with CNBC-TV18, Amit Dalal Of Amit Nalin Securities said that he is positive on the markets. “I think that the market will perhaps, after the rollover, go in a lighter weight that it has been carrying of this over bought market,” he explained.

Excerpts of CNBC-TV18’s exclusive interview with Amit Dalal:

Q: What do you see the market doing over the next week to 10 days?

A: My opinion is on the positive side. I think that the market will perhaps, after the rollover, go in a lighter weight that it has been carrying of this over bought market. It’s also going to perhaps, look towards the budget and look at the market on a more positive stream because of expectations of huge revenue collections of the government. So after this whole wash up that we are having, it’s like a washing machine cleaning out everything that is excess right now, I think the market will look on a positive side.

Q: Is that hope in your voice or conviction?

A: Right now it’s more like hope, because everytime I put that together in a thought process, it seems to correct 200-points. But if you look at the results, M&M’s result today, I think it’s a spectacular example to give. Against all expectations, a turn in the cycle is something, which is very important.

If the CV cycle also starts turning which hasn’t turned yet, there is no way anybody cannot look at that as a sign of positive economic growth. I’m betting that’s going to happen by January or February numbers which one will see from Tata Motors.

I remain positive on that account, I remain positive on everything else said about Mr Reddy’s report and that is that economic growth will be 8.5% with enough liquidity without changing the CRR or changing the interest rates. I think the US and the factors that are playing out right now, like the UBS right off, all these factors are so spectacularly large, we are forgetting the India story is not yet effected, the demand is still growing.

Q: You spoke about M&M but are you totally convinced that, at the end of this earnings season, that everything is fine or have there been some nasty surprises this time?

A: I don’t think I’ve found anything specifically negative. What disappoints me continuously is the domestic pharma market, some how its still not giving us profitable growth. Some of the global pharma company like Sun Pharma have started doing better.

Real estate, I’m still worried more on the fact that I think that the current revenue of bookings is not reflected in the profits. We are seeing profits because of what they might have booked a year ago and what is perhaps under work in progress right now. So if we take that kind of information, and that’s not available, I think the ratio is diminishing and therefore, one is going to have lower volume growth in the next year or in the year after that.

That remains my biggest concerns on the developers, a huge base that they have created, they are going in for constructions and the loans that they have taken.

Otherwise, banks have done well. Technology companies have done well even though we don’t look at them more positively for the future. Two wheelers of course, remains in an area of underperformance. Besides that I haven’t found anything which was sharply negative.

Q: FMCG has more or less been a strong set of numbers, especially so for some of the smaller guys. Would you buy anything from that space?

A: I like the full sector and I would look at perhaps Dabur and even Marico. In the largecaps I like ITC. I like that space and the fact that they are growing very well.

Also, as rural penetration improvement has started coming, I think the FMCG sector will see their ability to push up prices and sell larger packets. These small things make a big difference to their bottom line, which we won’t perhaps see in the beginning, but once we see it, there will be a steep upward curve and that would be difficult to time, so it’s a good time to buy them right now.

Q: When do you think this aversion of the midcap space will ease?

A; Not for a while, not till the largecaps start performing and we see at least another 2000-point rally. So the midcap confidence market has to come back, it will have to be at least above the 20,000 Index. not before that.

Even then, many of the companies that went up and which have become large, liquid stocks, their businesses itself are difficult to evaluate, their performance in the past has been a suspect or poor. However, the stocks still went up because of some land proposal etc. These things will never do anything for investors for a long time to come.

Q: How material is the Fed announcement going to be for this market in the short-term? If it’s 50bps, are we looking at a gap up opening tomorrow morning?

A: I think more than what Bernanke says or Bernanke does now, I think it’s the whole attitude towards equities and the allocations that we want. We are starved of FIIs and the word decoupling should now be out of all equity market dictionaries, at least in India, nobody should talk about it. We have absorbed stocks as much as we can and now we need flows to start. So if 50 bps can do that for us, or whether the global markets movement upwards brings some more equity performance, I think what we need is flows. If that comes through than our markets can show us some better colours.

Q: At this price, would you be a buyer in Reliance Petro?

A: RPL and RNRL gave us the biggest fall when the market fell last and as much as I think it’s a great company which going to go into production soon, I’m not sure the valuations is something that I will feel very confident of at these levels. I would stay away from RPL.

Q: Would you be budgeting for a pre-budgeting rally. There will also be the Reliance Power money that will come back in and perhaps some liquidity from abroad going by the stock of rate cuts. Is there any possibility of a huge rally before the budget?

A: I’m very much of the view that we will have an upward rally in the month of February, whether it starts on February 5 or whether it starts on February 1, but I remain positively biased for the month of February. I’ll give you three or four reasons why I think so. One of the best reasons that we have here is that we have seen a huge sell off from the foreigners. We are not now going to see a sell off, perhaps there’s a case to be made out that may be the sell off is ending and now we will see buying coming back.

Further there’s been a huge wash out in the domestic market, we were in a momentum market, we were in a market where an Ispat could go up Rs 20 in a day, an Essar Oil went up Rs 200 in a less then a month’s time. These were the companies that people didn’t understand, they didn’t understand what the prospects of these companies are. However, they went up because of the sheer strength of the market and perhaps there was some change in the story in that company, but that itself was never understood.

Now all that is behind us and one will have concentration of wealth coming into the market only in stocks which have earnings growth, which have a good business cycle in front of them. There are at least 20 out of 30 stocks in the Sensex which can give you that. So why wouldn’t money flow back here? There’s a very good potential that it will give us at least 15-20%, if not higher return, on a YoY basis and which market offers that in a world now, If Bernanke reduces by 50 bps money is going to find no return anywhere.

Disclosure:
It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed.

Source: Moneycontrol.com