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SV Prasad of Schroders said the markets are likely to remain rangebound. He is wary of near-term prospects. Gautam Shah of JM Financial Services told CNBC-TV18 that the markets are clearly in a downtrend. "We need little more timewise correction. 16,000-16,500 is the ideal zone for the Sensex to bottom out."

SV Prasad of Schroders said the markets are likely to remain rangebound. He is concerned about the liquidity situation and FII outflows. Prasad is wary of near-term prospects. He advises investors to focus on largecaps and telecom.

Gautam Shah of JM Financial Services said the Sensex is trading in a 16,500-18,500 band. "Resistance is seen towards the upper end of the band." He feels the markets are clearly in a downtrend. "We need little more timewise correction. We expect a breakout on the downside before markets actually bottom out. 16,000-16,500 is the ideal zone for the Sensex to bottom out."

Shah expects the choppiness to continue. "A lot of stocks are likely to hit their 52-week lows."

Excerpts of CNBC-TV18’s exclusive interview with SV Prasad and Gautam Shah:

Q: How are you feeling about the market right now? Is it your sense that we will remain ranged for a while between this 5,000-5,500 mark?

Prasad: This is something, which is very much expected. I did not expect the market to bounce back the way it did from about 16,000 levels. Liquidity is the big concern. Every time there is some global rumbling, it immediately has an impact on India. Corporate results cannot continue to be buoyant as they have been buoyant for various reasons. So, it is a little bit of a concern in that sense, but I guess it is expected.

Q: Technically, what is the market indicating? Is it still a prudent trade to start accumulating towards the lower end of the band that many traders have been talking about?

Shah: After hitting the panic bottom at 15,300 a few weeks back, the Sensex has clearly made a bang for itself. The Sensex is trading in a band of 16,500 on the downside and about 18,500 on the upside. While we have stayed in this band, the bias has been negative. Every time the markets have rallied towards the upper end of the band, participation has been limited, and volume activity has not been much. Despite positive global cues in the recent past, our markets have not been able to really build up on the gap-up gains, which we have seen in the last couple of trading sessions.

On the flip side, everytime you have weak global cues, our markets are ready to really break support levels on any given day. This is a market that is clearly in a downtrend. That has been the case for the last one month. We have corrected a lot price wise, but we need to correct a little more time-wise. This choppiness between 16,500 and 18,500 will continue for some time. But looking at the way some of the index heavyweights are placed, I just get the feeling that there is a possibility of a downside breakout of this range before we actually bottom out.

Q: Do you see any downside risk for the market technically? Is it that we go back and test the lows that we made in January or do you think support will emerge somewhere else?

Shah: It is going to be very difficult for the Sensex to break its recent low of 15,300. Once you have a panic low in place, there will be a section of buyers trying to indulge in bottomfishing every time we get close to those levels. More than the Sensex, you will have a lot of stocks making new 52-week lows or new recent lows. For Example, the Reliance group looks extremely negative on the charts. If the Reliance group, which has been a leader during the upmove and downturn, is looking weak on the charts for new lows, then obviously we will see the Sensex lose further ground.

As a house that 16,000-16,500 is the ideal zone for the Sensex to bottom out. We would like to see the Sensex get to that zone. Around those levels, we shall look at the charts for bottoming out signals.

Q: What concerns you the most about liquidity, the fact that the domestic participation has dried out in this market or we could see some more or stronger outflow from the FII space?

Prasad: My concern is about more outflows from the FII space. That to me is the biggest concern because the global scene is not good. When you have the likes of Alan Greenspan making the sort of bearish statements that he is making, a general trend in Europe and UK not looking good as far as the economy is concerned, my concern is more in terms of a big global outflow.

There are a lot of sanguine hopes on the Budget. If for some reason, the hopes that are built around the Budget don’t meet up or even if it meets only to the extent the markets have already discounted, I shudder to think what will happen to the markets. It will take a very brave bidding man to talk about any range as far as the markets are concerned. Corporate results still seem all right but because of the large denominators, the large base, and the sort of growth that we have seen over the last few years. But margins are clearly getting hit.

IT is one clear sector. One may say that is because of the global factors. But the reality is known by all, rentals and salaries are going up. There is a lot more competition in each and every category. So, there is a margin shrinkage that is happening. Even if we are talking about the same P/E levels, god forbid, we don’t see any P/E correction. On reduced margins, clearly one can see the impact it is going to have on prices.

I am very wary in the near-term. In the long term, everything looks good. But in the near term, clearly there are too many dark clouds that are looming in the horizon. This is the time to keep up to your asset allocation, maybe pare it down a bit and focus more on largecaps or solid stocks in the telecom space and so on and so forth. That would be my general approach in these kinds of markets.

Q: Are liquid stocks making any kind of base building exercises for themselves? Are they still just struggling to find their feet?

Shah: No, some of these liquid midcap stocks are trying to build a base. But this entire reconstruction process is going to take a lot of time.

The problem is that midcaps and small caps are not looking too bad at this point. Most of them have lost anywhere between 50-75% from their recent highs. So, they are looking deeply oversold. But the problem is that unless you have the Sensex and the Nifty bottoming out, you will not see midcaps and smallcaps participate aggressively.

So, going forward, if the indices were to correct from here, the midcaps and smallcaps might just outperform by just staying sideways in a range.

I would like to do some bottom fishing in the midcap and smallcap space over the next 3-4 weeks during the Budget volatility. I think that is really an opportunity for medium-term and long-term investors. But stay away from the largecaps for the time being.

Q: Which of the Reliance stocks are looking the weakest to you technically?

Shah: Just about all of them in the Reliance Group. Most of the 5-7 stocks in the space are likely to break their recent lows. In fact, we have been advising short trades for our clients on an almost regular basis in this group. Going forward, over the next 2-3 weeks, you will see most of the stocks lose anywhere between 10-15%. If that is the case, we are in for some trouble for the Sensex and the Nifty.

Q: How do you approach a space like infrastructure, construction and real estate to an extent?

Prasad: I would frankly bet on largecaps and certain select names, which have been highly volatile. Those names would obviously be avoided.

But it is better to be in the largecaps like telecom, such as Bharti, L&T and M&M.

Frankly, it would be a really brave betting mind to bet on midcaps. The problem that happens is that some of these not so liquid stocks, which get into the F&O segment in a bull market, grow that much faster than the largecaps.

In a bear market such as these, they fall as though there is just no bottom. I would frankly stick to the known largecaps or the ones where one is a lot more comfortable.

I have never been a great believer in the real estate play. Frankly, it’s been overdone. Prices have shot through the roof everywhere.

If you compare rentals of the cities in India with rentals in Asia, it stretches the imagination as to how long these kind of rentals can carry on. So, I have always been treading with caution as far as the kind of buzzword such as real estate and infrastructure is concerned.

I would rather stick to the known rather than taking bets on the relative newcomers in India.

The Budget is something that I will clearly lookout for and see how the market reacts to it. One may say that markets are getting de-linked with the Budget. But the reality of the matter is that Budget is a big signal. There is this huge hope being built that FBT may go and you may have a surcharge. I think that is a huge thing.

I am not so much concerned on individual taxation. It is more on the corporate taxation side that one will see and signals on things like service tax, etc.

Is there a lot of populism in the Budget given that so many elections are happening and are around the corner and central elections are less than a year away?

To me, the Budget is a clear signal. I would rather stick to the known stocks and not touch the speculative ones. That would be my approach in this kind of market. Be very disciplined on asset allocation.

Q: What is your sense when you look at some of the global charts? Does it look like some of the volatility that we had in January has eased off for most global markets? Do you think this is going to remain for a bit?

Shah: Volatility will remain. Let us not forget that global markets have lost a lot of ground. Emerging markets over the last 3-4 weeks have lost anywhere between 25-30% very quickly. Some of the emerging markets are currently in a bearish continuation pattern, from which we might just breakdown once again, over the next two trading sessions.

In the US market, the setup is still a major concern because breaking 12,000 on the Dow should happen anytime within the next one-week. It might just take the US markets back to their recent lows. So, the US market is definitely a concern. If that is the case, Indian markets are not going to be out of the woods very quickly.

Q: You have not been a big fan of technology. What are the charts indicating to you now-frontline or midcaps?

Shah: Technology has been in a downtrend for a long time. For the last 4-6 months, they have been in a downtrend. So, there is no reason to believe that we are out of the woods for technology.

There are times when you see a small bounceback coming in. You see 5-7% pullbacks coming in on technology. But I feel that these are sustainable and should be sold into, which has been the call previously also.

The kind of moves and rally seen in technology today should be used as an exit opportunity. Some of the technology stocks might just get back to their recent lows before they actually bottom out.

Source: Moneycontrol.com