Share Bazaar News India

Ramesh Damani, Member of BSE, said the recent rise is a rally within a bear market. The worst may not be over yet and markets would tend to be more circumspect. US technical analysts don't see Dow making new highs in 2008.

He adds that India may find it difficult to chart its own course. He is beginning to see impact of inflation in the US. He thinks inflation will be a big problem and will take time to tame.

Excerpts from CNBC-TV18's exclusive interview with Ramesh Damani:

Q: Do you follow technicals at all yourself or were you a skeptic on the technical side because you are a hardcore fundamentalist, you look at balance sheets and pick stocks, but do you use technicals at all in trading or in picking stocks?

A: You are right. Of course, price and value are the two big components that I have always looked at in my career and have done reasonably well in that. But yes, as a matter of fact, I do and I am very impressed with volumes, stocks breakout volumes, the particular chart patterns I have found that a stock breaking out with basing idea is very helpful to find. To give you good entry and exit point, sometimes a graph or picture is worth a 1,000 words. So yes, I do have a technical package in office and I would tend to look at it. I may not base my fundamental buying decision on how the chart looks, but on a trading position way of understanding of where the market is. I can then understand where the market might go, I would definitely look at charts and quite frequently especially in terms of these other indicators like sentiment, money flows all those are fairly valid technical indicators of the market.

Q: Technical analysis is sometimes coughed at in India, did you see or learn something new that said, maybe you need to look at technicals a little more carefully?

A: It has been coughed at in America too. For example, Ralph Acampora the guy who called 7,000-10,000 on the index had to actually fight when the Sarbanes-Oxley Act was being passed in the US Congress post 2000. There were two kinds of analysts on Wall Street, fundamentals and technicals, and both had a right to view. The Sarbanes-Oxley has said only fundamental point of view. Louise Yamada, one of the most story technical analyst in America was actually let go by a company, they closed down the technical department after 100s of years of research. Smith Barney, where she worked, had a very famous chart room where they kept charts of interest rates, rain fall, stocks, equities, indices for over 100 years, they just closed it down. So there is a lot of skepticism also on the street. But I think over periods of time people have come to understand that it is another tool with which you understand the market and there is a price discount, and it is very important for people to understand the price. It is not necessarily the only tool that he use, but it is one of many tools that analysts need to use.

Q: How do you look at technicals? There has been so much focus on the 200 DMA over which we have climbed for the first time since the Union Buget? Are you getting the sense that technically the worst is in place or it is premature like some experts mentioned?

A: It is a very difficult question and really I have been grappling with it like the other analysts on the street. As you are also well aware in your own series that the street is divided evenly between people who are saying that the worst is over and people who are saying that we are in a bear market. Unfortunately, I happened to be on the bearish side of the market at this time. I feel that we have made a significant top at 21,000 and the rally seen over the last six or eight weeks is very powerful in a bear market and typically this kind of rally is so strong that we will even seduce the non-believers back into the market.

Let me give you a case history as an example, if you go back and study the Nasdaq, it topped around March 10, 2000 and 5,000 level on the index, when the first leg of the fall happened it went to 3,000 and then it rallied and six months after March, sometime in September and October you could have sold Nasdaq at 4,250. Now over seven years our lights have been dimmed as to the extent of fall; we already remember 1,100 on the Nasdaq, but six months later you could have sold Nasdaq at 4,250.

Once it broke 4,250 decisively, it went back two-three times to that 4,200 level when almost the bottom fell off the Nasdaq. So I am not suggesting that the bottom will fall out, but I am saying that just because the market is showing a very powerful rally. It does not mean that the worst is over and because you broken a 200 DMA, it does not mean the worst is over or because you have made a higher top, it does not mean that the worst is over. History is full of examples of false breakouts, false moves and I think given generally the macroeconomic environment of the world, given the high excesses, valuations, the A group on the stock exchanges, I would still tend to be circumspect.

Q: One of your guests made the point that he didn’t see a big turnaround in Asian markets till it didn’t happen in the US; was that the sense you got that technically most people expect a lot of coupling for markets?

A: Dow remains the mother of all the markets we found out and my sense is that we had a global bull run in the equities in 2003, and if the global markets don’t revive, it’s hard to see India charting a course almost independently, and that is the view that I got from Wall Street.

Q: What are they saying about the Dow? Everybody in the world is surprised at the resilience and strength of that index, what did you get from the best technical experts there?

A: That’s actually funny because I kept asking them and there is a very famous truism on Wall Street that you can’t fight the Fed and given what the Fed has done, can you suggest the Dow making a new high in 2008, and almost universally everyone was aghast at the question. So surprisingly in their own domestic market, they are not optimistic and the kind of liquidity that the Fed has provided, it's providing an impetuous to the market.

But as I travelled across the States, I went to New York and Los Angeles, you could see the beginnings of recession, gas at USD 4 announced is hurting them. In a country like America, they are rationing rice and that has never happened in the 30 years I was going to America. Food inflation is high, a lunch which used to cost USD 5, is costing USD 7 and USD 8 now, so we are seeing the impact of an early recession in America. I think till the election is over and till the new President is elected, there would be no fresh economic stimulus coming other than the tax packets that Bush has already announced. So there is hurt on the street.

Q: What’s making you so circumspect that we haven’t seen the worst despite the pull back that we've had ?

A: Couple of things. One thing is that I have lived longer than most of the analyst have had their sneakers. They haven’t seen the period of 1980’s, late 70's-80’s in the world where you had huge global inflation in oil and in commodity prices and the kind of damage that it does to corporate balance sheets. I think we had benign conditions from 1982 to 2005, various global bull markets had gone first in bonds and then in equities.

So I think most analysts don’t go back to that time in history, when the corporate balance sheet was ravaged completely by inflation. If you look at oil for example at what price does the global community take care of oil? When I was in US, everyone would announce that oil hit a new high today, and then they would move on to the next piece of news. But oil at USD 120/bbl means a cash flow difference between the West and the Middle East was almost a USD 1 trillion and in the Western economy there was a marketcap of USD 14 trillion, so 6-7% of transference of wealth is taking place every year because of the oil prices. How long can that be sustainable? And if you look at food inflation, I don’t think that is going to go away in 2-3 months. You can’t increase the supply of food over the three months, may be one or two agricultural cycles can do that.

So I see a huge problem with inflation, which people think that can be fixed over the next 2-3 months. I think it will take longer than that and the variations are not cheap and if you look at the broad marketcap sales ratio, or P/E ratios, some of the A-group stocks and some of the market leaders in the last bull run, you think that there is plenty of room on the down side and this rally is a very powerful rally, which almost seduces you back into the market. My suggestion is still remain careful.

Q: It has been all about the commodities this year, not just crude. Agri commodities as well like you said rice, soya, wheat, all of it. Did you speak to some of your experts about what has been happening in the commodity universe and where that might be headed?

A: In terms of commodities, we spoke mainly about oil and gold because they are two good proxies for the commodity space and someone like Louise Yamada, technical analyst, whom I interviewed in the show when oil was at USD 30/bbl, she had predicted oil would go to USD 100/bbl and at USD 60/bbl she had predicted that oil would go to USD 200/bbl. If you really want to hear her extremely long range forecast, I think you would be scared but a lot of people were suggesting that oil is not going to go down and the technical targets for oil could cross USD 150/bbl easily. Now in between that, there will be volatility, oil could come back to USD 100/bbl, we have seen a correction take place even yesterday when we speak, but I think the long-term fundamentals and technicals of oil point to a higher price.

Source: Moneycontrol.com