Share Bazaar News India

KN Vaidyanathan, CEO, Alchemy Capital Management, said FIIs are still cautious and India's fundamentals are strong. Markets are well sold out technically and he sees listless trade in the near-term, he told CNBC-TV18.

Global news and earnings will drive markets, he added. Also, it's not a time to sell and he would advise investors to hold on.

Excerpts from CNBC-TV18's exclusive interview with KN Vaidyanathan:

Q: How are you feeling about all that has gone by and do you think that for the near-term at least the market has put the worst behind it?

A: It is extremely difficult to keep commenting on near-term, though I guess that is what a lot of people are looking for. If you analyse it in three parts, global factors, India specific factors and some technical issues. So far as global factors are concerned, I think a lot of it is over, but the fact that the FII activity is still very cautious suggests that people are still waiting for some more developments out there especially around the credit issues as well as consumer credit. So far as India factors are concerned, I think we are sitting on a very good story for the long-term. The fundamentals are pretty strong, so anyone who has got three-four years perspective on the market, this can go no wrong, he can make a lot of money.

So far as technicals are concerned in India, the market is pretty well sold out. If you compare the levels at the top of the market in terms of outstanding positions, we are at about 20-25% of that. In retail, the non-institutional, is far lower than what it used to be. It used to be Rs 35,000-40,000 crore and now it is about Rs 8,000-10,000 crore. So you are looking at a market, which is technically very well sold out, but you are also looking at a market where the traded volumes in the day are also low.

So what the market is telling you is a little bit of listlessness, there is not too much news, but lots of views going around, people are watching this time around. It is the domestic investor who has come first to start buying, the FIIs are on the sidelines. You have seen some rally maybe because of the Budget expectations.

In all, I think the near-term will continue to be listless, up down sideways movement. I do not think there is too much bottom to find, but at the same time I want to caution that you are not going to see anything spectacular for the next one-three months.

Q: How is the market looking from a value perspective? We have had two very serious cuts, one in January and one Monday last week and the market is now around that 18,000 mark give or take a couple of 100 points.

A: I think the broad market valuations are very good, we are trading at 17 times one year forward levels, but I think the more interesting story is where you saw some of the corrections happened as part of what we call 'collateral damage', because not only did it correct some of the froth in the market, it also corrected some of the good ones as well. So there are very attractive valuations in sectors like financials particularly on the banking side, you are seeing some very attractive valuations on infrastructure themes, so long as you are dealing with people supplying into the sector.

There are valuations, which are compelling and then you super impose the potential growth story. Then these become longer-term winners but people have to have conviction in what they own and hold and also give themselves better probability with time. So they need to show some patience if they have to benefit from this.

Q: What do you think would bring back conviction in this market because from many days now we have been talking about absence of volumes given the uncertainty in the global environment?

A: Conviction is different from sentiment - sentiment is infectious, conviction is born out of an analysis, and that the investor has to do or the investor’s money manager has to have. I think if your conviction is solid and well founded, corrections will not shake the foundations of that, but what is likely to bring sentiment back into the market is that people will have to wait for a spurt of good news to come in. It could be the April year-end numbers coming out of Indian corporate sector, it could be the first quarter numbers of US after all the bad news has happened, how they are looking up. So I think at the margin, the driver will be sentiment and the sentiment could come from a combination of US-led news as well as Indian corporate results.

Q: Between the midcaps and frontliners, there is much talk about how interest might first come into the largecaps and then flow down to the midcap story, we have been seeing one or two days of resilience in the broader universe, how do you expect the markets to play out in both segments?

A: If you look back, the tendency in the Indian market is that always the midcaps get corrected a lot more, combination of liquidity and volatility and they take more time to turn around. It is the largecaps, which turn around first.

But the interesting thing about midcap is the catch up and the outperformance happened in a very short interval of time. So it is important to stay invested through these kinds of periods. Midcaps are not ones where you try to get in and out of the market on timing factors.

So for longer-term investors, if you have midcaps at this stage and if you are convinced about it, this is not the time to sell and one should hold on to these, the time would come maybe a few months out, maybe after the largecaps have had a pretty good run up, but the entire outperformance will come in a very short interval of time and you need to be invested in that period.

Q: Do you think some of the collateral damage that happened from the primary market on to this secondary is out of the system now?

A: I think these two go hand in hand. In the secondary market, you saw some froth, the correction was a good excuse to get some of that out of the system. Indian market momentum in the secondary market led to some kind of excesses even in the primary market and you saw the correction being a good excuse to see some of that get stripped out.

Both the primary and the secondary market will tango with each other, rub off each other, what you would hopefully see going forward is more realistic pricing, more realistic valuation and more importantly from an investor’s standpoint, more realistic expectation setting. I think that is where the two will go hand in hand.

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

Source: Moneycontrol.com