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Seshadri Bharathan, Director Stock Broking, Dawnay Day AV Financial Services feels there is still bad news left in US and European markets. According to him, the action on Indian markets is due to expectations of results or a result of some short covering happening in the markets. He expects the Nifty to be range bound between 4600 and 4900.

Speaking to CNBC-TV18 Bharathan said it will take some time for the market players to digest the new STT regulations and come back and trade in the market. His top recommendations include top pharma companies, top FMCG companies and the Reliance Industries.

Excerpts of CNBC-TV18’s exclusive interview with Seshadri Bharathan:

Q: You have seen a lot of drama over a last few days, a lot of domestic factors impacting sentiment. What’s your sense at this point in time, what are your clients feeling about the market?

A: There are two parts to it, global cues, I expect that there is some more bad news left in the US. In Europe too, today we have heard that UBS has written down USD 19 billion and Deutsche Bank has written down USD 3.9 billion. So I think there is still some bad news left in the market.

What we are seeing in the Indian market is the expectations of results or some kind of a relief rally or a short covering happening in the market because of which we are seeing this seesaw in the market. I think it’s more of volatility in the market and we would be range bound between 4600 to 4900 on the Nifty.

Q: What’s your own call on participation? The new STT regulations have kicked in from today and you are seeing the impact that’s some of the arbitrages have weighted this out. Do you think that as earning season progresses and people are a bit more comfortable once as STT news gets digested, that we could start seeing an increased participations or not yet?

A: if you look at the STT, where you could adjust against the tax, today it can be adjusted against the expenses. So yes, it will take some time for the market players to digest, especially that the arbitrage volume has come down. If you look at today’s volumes, it is pretty low. So it will take some time before people could digest and then as we have seen in the past, over a period of time, people accept this and they would come back to trade in the markets.

Q: What’s your sense, at this point in time, in terms of parking money. Would you do it right now or what is it that you are telling clients, wait it out a bit before earnings are down and over with?

A: We are advising them to buy selective blue chip stocks which look good to our research team.

Q: What are your top recommendations at this point of time?

A: A couple of top pharmaceutical companies, we are looking at top FMCG companies, and the Reliance Industries etc.

Q: How gung hoe are clients about capital goods as a sector at this time because we have seen a fair amounts of cuts on the prices of most of these capital goods stocks. First there was the economic indication coming in with growth slowing down in the sector which impacted the price movement and now we are looking at another wave of selling. How much of an institutional interest is stepping out of this sector?

A: If you look at the capital goods sector, yes January was a bad month, the growth was around 2.5-3% odd. But having said that, I have also been speaking to a couple of capital goods companies, they say their order books are there but they would also need funds to execute those plans. So the kind of inflation that we are seeing in this country, I think the fund raising would impact the margins of capital goods companies.

Q: Would you buy into a SAIL, or Tata Steel or JSW Steel right now? There has been a lot of talk about raw material prices going up and yesterday the finance minister spoke about a restrain on price increase. Do you think the operating performance of these companies is going to even out as to what they have been and make a strong case to buy in at these prices?

A: Yes the operating margins might be affected because of the increase in iron ore and raw material prices. But having said that, these are blue chip companies and if one can look at long term investments then yes, these are companies which one should have in their portfolio.

Q: What about the broader markets, one word on the entire mid and small cap index, they haven’t moved in tandem with the larger index. On days where the larger index has fallen, they have moved quite the opposite way and vice versa. Do you think the pain is still over there or do you think there is still more downside left because of the fact that there still may be some leverage positions on some of these stocks represented on the futures side?

A: The pain is more-or-less over in the midcap and smallcap because most of the broking houses were selling positions of the clients to clear the debit for their quarter end balance sheets etc. So we might see some selecting buying happening in midcap but for that to happen. We should first see the buying interest happening in the blue chips and the front line stocks followed by the midcap stocks.

Disclosures: It’s safer to assume that some of the stocks that I have discussed, I might be having or my clients would be having their portfolio.

Source: Moneycontrol.com