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It was an eventful week, not simply because how much the Nifty has moved or what the Sensex or the midcaps have done. They have been volatile like global markets. Most of Asia has been shut.

But a large part of this week’s action has come from the primary market, and not good too. Two high profile issues of this week, Emaar MGF and Wockhardt Hospitals have been pulled back by their promoters because they could not get subscribed for whatever reasons. It has been a disastrous week for the primary market action leading upto the very important Reliance Power listing on Monday. The market is interestingly poised to say the least just above that 5,100 Nifty.

Nilesh Jasani of Credit Suisse was quite positive in the run-up to the Budget, and said the markets would stage a rally in the near-term, even though they were looking a bit oversold. However, he expected the markets to be choppy post the Budget, in the middle months of 2008.

He was not positive on the markets going back to their old highs in the near-term, unless there were some positive surprises, in the form of huge tax cuts by the Finance Minister in the Budget.

Excerpts from CNBC-TV18's exclusive interview with Nilesh Jasani:

Q: Are you optimistic about the markets or is your view more circumspect?

Jasani: The market looks a bit oversold in the near term. In the run up to the Budget, we do have an event, which is potentially highly positive, that most markets in the world are going to embark fiscal easing potentially much ahead of almost all the other emerging markets and that’s definitely a positive. So near term, I am definitely positive.

Q: What is your take on the primary market issues, which had to be pulled out?

Jasani: One or two IPO pullouts do not alter the entire story. But we have to remember that our fundamental story is linked to the world exactly through the equity markets. The reality is that ours is an equity finance story.

If the US has a slowdown, our economy doesn’t get affected because we don’t really export as much as many other economies. But having said that, we do rely on global financial markets stability to finance our equity market driven, investment led growth story and if this becomes more of a norm rather than an exception, then it is not just about market valuation that we have to worry about but we also have to worry about the entire topdown macro story. So, yes just the first event, but clearly something that’s not good.

Q: When you said that you are expecting a bounce, is that a tactical call, or do you think the worst is over and we can move upwards in a trending fashion for 2008?

Jasani: It’s definitely a tactical call; we do have a lot of potentially negative events to go through in the global economic world beyond February. Occasionally we will have those weeks where the Fed cuts interest rates and the markets globally have a bit of an exciting time.

But overall, it is unlikely that between February and this year, and say June and July, we will have too many positive events. And there are going to be a lot of confessions globally and a few on earnings and fundamentals front in our economy as well. So overall I definitely feel that these are going to be rocky middle months for us after the Budget.

Q: What is your estimate of the kind of band that you see your markets in?

Jasani: We have not seen the lows of the year so far. Chances are that in the middle of the year we will retest those lows. A lot will depend on how the fundamentals change or don’t change in the next 6 months. What one doesn’t want is GDP and earnings numbers coming under downward pressure too much ion India in the next six months and if they don’t and if that tag of India independent story remains, then a sharp rebound towards the year end is highly possible.

But as I said, for me the most interesting thing that is going to be out here is how resilient are our fundamentals and there are more doubts on that than what most people believe in.

Q: What’s your expectation on the liquidity front?

Jasani: On the liquidity front at some point, the RBI will have to think about interest rate cut and that will be the most interesting positive development in the near-term from a liquidity viewpoint. Another positive is that the RBI is likely to be ahead of almost of every other central bank in the region in terms of cutting rates.

So in terms of policy both in terms of fiscal and from the monetary policy viewpoint, there are some interesting positives for us. I think the problem for us despite these independent positives is that our valuations are not exactly supportive. With all this liquidity coming in and out all the time, the market is still not deep enough to absorb these flows while coming in or going out without too much volatility and that is what is causing all these very wild movements in the stock index.

Q: From your perspective what do you like and what do you dislike even after the correction?

Jasani: Even after the correction definitely would avoid anything where either earnings or valuations depend on some sort of stock market activities. Any embedded value stock or some of the power stocks where effectively one was waiting for some sort of listing of a subsidiary or hive-off or private equity participation, those are the kind of stocks that I would definitely think about.

I would definitely think about reducing stockbrokers at every opportunity. That is where both in terms of primary markets and secondary market activities, one is witnessing the sharpest slowdown already, and that is likely to continue one or two more quarters if not a bit longer. So those are the kind of sectors that I would avoid wherever one has stock market connection.

What I would go for sectorally, it would be more sort of topdown. I would say look at visible earnings, where you have visible earnings and reasonably good earnings growth, even if valuations are little bit more expensive, like in the case of engineering companies, I would still go for visible earnings. Where I don’t see visible earnings, a lot of concept value, embedded value, that is where I would be much more sceptical

Source: Moneycontrol.com