Rashesh Shah, MD and CEO, Edelweiss Capital, said investors have been cautious on markets as volumes and open interests have come down. Most negatives have been priced in, though one needs to watch out for global cues, he told CNBC-TV18.
According to Shah, a bear market is not in sight till domestic GDP and corporate earnings growth slows significantly.
Excerpts from the exclusive interview with Rashesh Shah:
Q: What is your sense of the market leading up to the Budget this time?
A: I think overall the investors have been very cautious. The market volumes have come down, open interest has come down, So I think a little bit of optimism, our overall feeling is that between 5,000- 5,500, we should consolidate for another 3-4 weeks.
Q: So you are not in the camp, which believes that Nifty will go back and retest the lows of January?
A: As of now, I think everything is in the price, we have all the bad news out there. We are still exposed to global liquidity issues and it is hard to anticipate those because even in the US and other places, people don’t know whether things have gone as bad as they can or get worse.
So barring this unforeseen event, we are in a consolidation zone because of the earnings momentum and this is the quarter when mutual fund and insurance companies will get liquidity inflows for the equity markets.
Q: Is the Budget a material event in your eyes or do you think it may not be such a big trigger for the equity market at least?
A: I think may be a couple of days after the Budget, it will have some impact but on structural basis over the last few years, we have seen the intermediate trend that has continued inspite of whatever came out in the Budget. So overall the Budget is another catalyst for a short-term but on the medium-term basis, it should not have any impact.
Q: When do you see the confidence returning as volumes are still very low? Are you seeing any signs of rebuilding of that conviction level or you think we will have to wait for a long time before that comes back?
A: I think a lot of results in the US especially the investment banks are going to be out in March because they end in February and after that, there will be no Indian results in April and at least until the end of March, things will stabilise. By then people will have some indication of how Indian corporate results would be which are expected to be fairly much on track.
So, on that basis, we think another three-four weeks at least should go into a consolidation zone and overall it will be healthy. The market volumes are low so everybody is upset at this kind of volumes. I think another few weeks going sideways will be very healthy.
Q: You are confident that we’ll get away with this kind of consolidation because some of the experts are turning a bit bearish and they are beginning to mention the bear market word. For 2008, in your eyes is it likely that it gets so bad?
A: Currently there are no signs of that. The only situation in which I can see that happening is the global liquidity crisis and this entire credit crisis, which keeps on getting worse. Unless the GDP growth story and corporate earnings starts slowing down significantly, there is no sign of bull market. Global liquidity has started going away but Indian market should hold because of Indian liquidity and Indian growth.
Q: What did you make of the deal and how do you think these stocks will move going forward now that the deal is announced and the ratio is known?
A: Overall it should be good because consolidation in this industry has been imminent for quite some time as someone said for Centurion Bank to constantly capitalize itself, raise money and maintain this would have been a lot harder and even for HDFC Bank the addition of branches, so overall it should create investor value. Exchange ratios are dependent on market price because if you go back 3 months ago maybe the market prices were not same, so on the whole the market has adjusted fairly well and investors can see value in this over the next 18 month to 3 years because integration will take atleast 18 months if not more.
Q: How has the Reliance Power bonus ratio gone down with the market and what do you see that one doing now and ex-bonus?
A: Overall the market is relieved because everybody was expecting 3:1 and so 2.5:1 is slightly better than that, so the market is slightly relieved, slightly happy and we saw it cross the IPO price though in the morning it was down because quite a few people had accumulated the stock on the bonus rumours and when bonus got announced, quite a few people sold but once all that selling was over, we think people are now seeing this as a good stock at about Rs 280-300 range and this is where it seems to have stabilized on an ex-bonus basis.
Q: REC also went through without a hitch, do you think mood has stabilized in the primary market after all those issues getting pulled out etc or it’s still a bit fragile out there?
A; It isn’t as optimistic or as euphoric as earlier. We have strongly believed that this is not just a primary market issue; this is also the pricing issue. REC has been reasonably priced and keeping in the mind the market environment and the market outlook, the reasonably priced issues will go thorugh and maybe we will not see 100 times subscription etc but I think if issues are over subscribed 8-10 times 18-20 times that is not bad as long as they are reasonably priced.
We think there is investor appetite for reasonably priced issues although no euphoria and I think it’s an ideal situation.
Source: Moneycontrol.com
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