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Prabhat Awasthi, Head of Equity Research India, Lehman Brothers, said the markets could remain choppy for the next few months.

"We have got fairly large global uncertainty around sub-prime, growth and now inflation because there were snow storms in China. Commodity prices have rallied very strongly. So, that is an added cocktail to the uncertainty. We at Lehman expect there to be more losses as we go forward in the next six months. For the next three-six months, one will have a choppy kind of period ahead."

Excerpts from CNBC-TV18’s exclusive interview with Prabhat Awasthi:

Q: What is the call at 16,600? Has it come down very quickly in two days?

A: For the next few months, it will remain a choppy market primarily because we have got fairly large global uncertainty around the sub-prime, growth and inflation. There were snowstorms in China. Commodity prices and food prices have rallied very strongly. That is an added cocktail to the uncertainty.

The inflation fear was not there a couple of months back. So, one had global growth. So, if one mixes those two for the short-term, one has a problem of growth slowing down. But the interest rate view is slightly firm primarily because one is dealing with increase in inflation. That is what the market is reacting to. But the risk reward from these levels is definitely attractive.

Now, we still have three months of uncertainty ahead of us relating to the sub-prime issue. We expect more losses as we go forward in next six months. For three-six months, one will have a choppy kind of period ahead.

Q: Post-Budget, the opinion was that the banking space might get a little bit easier aside from the dole out. But today many of the stocks, in terms of performance, are really struggling. What did you make of that big waiver and how it will impact life for many of these PSU banks?

A: We have put out a cautious view, especially from a strategy perspective on banks. While Rs 60,000 crore has been put into the Budget, there is no funding that has been tied-up. So, in that sense, we have no certainty or knowledge of how this money will come back to banks, in what form, how much of it will come back, what will be the benefit and whether there will be any benefit at all.

When one does something like this, it’s a direct intervention. Typically, that is generally not very positive for any sector. We have seen that in oil. Even though you are giving them bonds and keeping them afloat, they don’t perform because control over earning grows.

I hope nothing like that happens to PSU banks. But till the time we are clear about how Rs 60,000 crore in what form and timeframe is coming back to these banks, there is a need for some amount of caution on that front.

Q: Why is capital goods underperforming in such a serious way?

A: I don’t think overownership is the issue. There were expectations that there will be large-scale announcements in the Budget. All you saw was a big step-up in spends, especially on irrigation.

Most of the reforms in infrastructure have already taken place. So, you have got independent regulators all over the place. You have model frameworks in place for public-private participation. There are no big-ticket reforms left and most of the stuff has been outside the Budget.

But there were expectations that there will be large-scale announcements in the Budget on infrastructure, which might have disappointed some people. But the direction in infrastructure is still right. So, you will probably get an opportunity to buy those stocks.

Q: Would you up your optimism on sectors like FMCG and autos, which seem to be direct beneficiaries from the Budget and the only space holding out today?

A: Of course, these are the two sectors where there is no rocket science. But these are two sectors, which benefit the most. The auto sector because of the price cuts as well as income increases in rural areas as well as the lower income tax bracket. So, there is a direct fiscal push for these sectors. I guess that is why they are holding up. So, there are no two ways about it.

Q: Is there any reason why India would underperform most of the other global markets, because not too many other markets have collapsed 5.5% today?

A: Part of the reason could be due to Budget related short-term issues such as STT being withdrawn or the short-term capital gains. So, they are sort of party spoilers in the very short-term, at least as far as the Indian market is concerned.

It is difficult to see how the markets perform this year. India has been a poorly performing market. But if you look at last September, which is when the first Fed rate cut happened, we are still doing reasonably okay.

We were at 15,500 at that point of time. So, we did go up very fast and then we are coming down primarily because there is concern about monetary policy at this point in time, especially given the fact that there have been few nasty surprises on inflation and the last two data points. That is why we have seen more reactions.

So, it is to do with the fact that there is some disappointment with the Budget. There is an external environment, which is obviously not making you very optimistic.

Q: Are you comfortable calling a bottom for this market? Do you think that in the context of what the global picture presents, is there still scope for further downside?

A: Timing the bottom is always a difficult task, especially given the fact that one doesn’t have a stable global environment. One still has US problems relating to sub-prime. So, all we can rely on is our own sense of valuations and whether we think the returns will be made over a period of 12 months from here.

On that, I must say that these are attractive levels to buy across many of the stocks that we cover. The market valuations per se on the whole are not excessive.

We are talking about growth deceleration, but the growth still remains healthy in the economy. So, the overall fundamental picture is fine. It is tough to say how long it will remain and it could be three-six months. So, I wouldn’t say that I am calling the bottom. I will say it’s a positive risk reward.

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

Source: Moneycontrol.com