Share Bazaar News India

Jyoti Vaswani, Assistant Director, Fund Management, Aviva Life, said the markets are in a consolidation phase. "A correction was overdue after the rally."

He feels there is a possibility that markets will re-test its January lows. "There are negative cues from the economic data, lack of confidence among investors, IIP slowdown, and high crude prices. Investors are not rushing in to buy, and fundamentals do not look very positive."

Sushil Kedia, Head-Institutional Equities, K&A Securities, said there has been a sector rotation. "The market has not found clear sector moves."

He feels the markets will remain choppy for the next 3-4 days. "The Nifty is likely to be trade rangebound between 4,600 and 5,300 for the rest of May. The markets may bottom in few days and can provide buying opportunities for investors."

Excerpts from CNBC-TV18’s exclusive interview with Jyoti Vaswani and Sushil Kedia:

Q: What have you made of the way this month has started? Where do you think we will end up by the end of this series?

Vaswani: Markets are in a consolidation phase and we had seen the peak of 21,000 some time in January. Obviously, the valuations have got really stretched at a point in time. So, a correction was overdue. Given that the markets have now stabilized, the market should consolidate in the medium-term. That is healthy also for the markets because a one-way upward rally with valuations getting to unreasonable levels is always a more dangerous situation to be in.

Q: How wide a range would you give the market? How high are the chances that it actually goes back to test the lows we have seen earlier this year?

Vaswani: I would not like to get into numbers. But there is a possibility that the previous lows of this year could be retested, given the fact that the data that is coming out is not really very healthy.

Though there has been some moderation in the group numbers, inflation data is a cause of concern and the global risks that are currently prevalent in the world markets. Given this scenario, it would be possible that the market could re-test the lows of this calendar year.

I would still say that the markets would consolidate with these levels probably for quite some time.

Q: What do you think is going to drag this market back to the lows we saw earlier this year? Is it the way the currency has been moving, the big crude shock that we have had to deal with or is there a lack of cash commitment right now-domestic or foreign?

Vaswani: There is a lack of confidence in the marketplace, essentially arising from the factors mentioned. Crude prices are testing new highs and obviously that is putting pressure. You also have the currency, which is actually depreciating, and this would have an impact on our current account deficits. India is perhaps one of the few emerging markets, where there is a current account deficit. It could affect the flows that come into India, in the short-term. So, there is a possibility of a moderation in capital flows.

All these factors are obviously playing on the minds of players and probably the investment that is coming in at a slow pace. I don’t think people are really rushing in to buy given that the fundamentals are not so favourable at this point in time.

Q: What is the domestic money doing? We keep hearing the converging reports about what the mutual fund cash levels are at. How deeply deployed is the cash amongst the domestic fraternity?

Vaswani: The flow, as far as the insurance industry is concerned, has been very robust. We have seen practically 100% growth in the AUM, in the last financial year, which is a very good growth. Even now, post the March quarter, which is obviously the best quarter for the insurance industry, we have seen very good flows coming in.

Some of the insurance companies might be sitting on a little bit of cash. But most of the times, the money is deployed into the markets. So, the cash levels may not be as high as may be perceived.

Q: Have you made any tactical changes, by way of sectoral preferences?

Vaswani: Earnings have been in line with expectations. Perhaps, the surprise has been from the banking sector where the expectation was perhaps of worse numbers than what actually came in.

The numbers for the banking segment and financials came much better than expected. So, to that extent, there has been a slight change in our allocations. But apart from that, results have been in line with expectations. We have not really changed much, in terms of our sectoral allocations post the numbers.

Q: How has the week started off? What is the best way for a Nifty trader to approach such a volatile market?

Kedia: It has perhaps been a rewarding trade for a minority of day traders. The Nifty may remain choppy like this for another 3-4 days and should be avoided for the remainder of this week.

As it pulls lower from here, 4,870 is one level that may or may not break. Then, you have 4,670, all the way down to 4,600.

So, perhaps rather than looking at price, one should take a break away from the Nifty for the next 3-4 days and see where a sustainable reversal should build up and only then there should be a trade there. It is already quite late on the short side of Nifty here.

Q: What is your sense of what this series might throw up? Is there a greater chance that we will get towards that 5,150-5,200 mark or is there a bigger chance that we actually go down to test the lows that we had in March?

Kedia: 4,600 to 5,300 should be the range for the remainder part of this series. As of now, it has been going down. Over the next three days, a reversal can come. After that, the speed it will take up and the number of days it takes to race back to 5,300 is difficult for me to say right away. But broadly speaking, that remains the range.

Q: How are you viewing oil and gas as a space?

Vaswani: That is a sector that is going through a very bad patch, in terms of the oil marketing companies. There is an election year and the prices may not go up to reflect the increase in crude prices.

Obviously, both the upstream and the downstream companies are going to bear the brunt. In that sector, it is beyond their control. They are trying their best and lobbying with the government to reduce the burden on them.

But it doesn’t look like the government is going to be listening to them too much given the fact that inflation is high and this is an election year. So, that space is going to continue to have some problems, going forward.

Q: What do you see on the charts of stocks like Cairn and ONGC?

Kedia: Cairn opened with a large gap up at Rs 306 today. Yesterday, it was closing at about Rs 300 but it opened 2% higher. This large gap up opening and sustained selling through the day is a very potent reversal signal.

Around Rs 306-309 was in any case a make or a break level because there were no previous yardsticks to make a comparison.

ONGC has been having a sort of rising wedge, within which it is getting closer to the lower boundary. Around Rs 940 is where the lower boundary will be. It looks difficult that it is going to be breaking that right away in this descent. Post this Rs 940, another bounceback to Rs 1,100 and from there a re-sustained fall should come on Wednesday.

Q: Where is the relative resilience in the Sensex or the Nifty right now? If you had to pick a pocket that might actually insulate this market from falling too much, what do you think that might be?

Kedia: We have witnessed a slowing down of the sector rotations. The sector rotations have really not been there and individual stocks have been finding their own reversal days. The market has been really bereft of any broad sweeping themes with which fundamental trades could be found.

Over the next three-four days, as and when the final reversal comes, SBI, which has been far larger underperformer for quite sometime may see a sustained reversal. It can provide a fillip, while the other larger stocks are languishing.

So, it’s still early days. Let us wait for three-four days and see where the new leadership for the new rally will come. Chances are it can be MTNL where there is a buy trade tomorrow and SBI might accumulate over the next two-three days with a patience to be able to withstand Rs 70-80 worth of drawdowns, which is really good for cash portfolio investors.

The other stocks are just rotating around. So, maybe the refineries have been really deeply oversold. There is so much of noise about the oil price hike.

Perhaps, the market has already been sensing that and has sold them down quite deeply. So, it may not be an appealing idea to go and invest in refineries. They might produce that bounceback. In that, the Nifty may not really fall as much as in the sort of downside volatility still persisting in some other stocks.

Q: The IIP numbers looked quite disappointing. Are you changing the way you are looking at capital goods as a space now?

Kedia: I am not too concerned about the capital goods sector because the long-term growth story for the sector is intact. Their order books are very robust.

Due to some capacity constraints, the numbers reported by some large capital goods companies were slightly below expectations. But that’s going to reverse and you will see the numbers coming back on track because the order books are very strong. We really don’t foresee any problems on that front and believe that capital investment into the country is continuing. We don’t see an issue on that front as of now.

Q: Would you recommend any sort of positional trade for someone who wants to play the series?

Kedia: My worry is only in the direction of the next 2-3 days. By Thursday or Friday, the markets would have perhaps made a real tradable bottom from which many opportunities might emanate. Some might emanate even earlier than that.

Capital goods as a sector is one which is looking to add to the Nifty on the higher side when this reversal comes. So, it’s just a matter of biding your patience for the next 2-3 days and perhaps start looking for building positional trades again.

Source: Moneycontrol.com