Mkt to retest Oct lows soon: Centrum Broking

Q: What is your sense of where this market might be headed over the next few weeks or even by the time we wrap up this month?

A: I think the problems are for real everybody is accepting it, we all were mentioning it and the corporates have accepted, the politicians are accepting it. The language in which they are mentioning is just that things should improve over six-nine months and not many are not ready to bite into this argument at this particular moment.

When I said the problems are for real we should understand that the asset as far as corporate India goes, it is possibly the lowest right now for the last many years. But as the net margins continue to be at a level, which is much higher than the averages for emerging markets as well as Asia, this indicates that there is going to be pressure on the Return on Equity, or ROE, as far as India is concerned. So, I see the ROE coming down sharply in 2008-09 and possibly a little bit more in 2009-10.

Fundamentally while valuations lot of people may argue that negatives are built in but I don’t think anybody is able to argue, as to why one should be buying into the markets at the moment. So while we could be having the rallies here and there, I possibly feel that sooner or later we should be possibly testing the October 27 lows.

Q: If that is your sense then going forward – not just in 2008 but also in 2009 and 2010 – do you think those October lows can be breached quite significantly and we can make lows, which at this point in time don’t look conceivable?

A: It is a very difficult call to state as to whether the October 27 levels will hold or not. Testing means possibly we could bounce back from that.

But as far as I can understand the markets, as and when they bottom, the indicator will be that we will have a time bound correction; a correction, which possibly will lead to volumes coming down, the volatility coming down.

Right now looking at the volumes and volatility, which in October were at all time high, the bottom is still sometime away.

But as and when the bottom comes, it should be accompanied by a drop in volumes and a very sharp drop in volatility as compared to what we are experiencing at the moment.

A time bound correction will make us possibly lose our patience, will possibly make us give up on the markets, markets will start moving up as and when they move up maybe three-six or nine months later.

I think we all will not believe that the markets are going up and then possibly one fine day we will believe that bottoms are here, the bottoms has been made for the markets. But I think it is a very difficult call whether October 27 low will hold or not but I personally feel that the time bound correction should start hopefully around that level.

Q: What is your sense of what happened in trade today is there an ownership issue over there that is getting corrected or is it a valuation concern that is getting scaled back?

A: We had a very weak opening as far as banks goes because of the very weak ADRs (American Depository Receipts), I think is number one. Then there are genuine concerns about the rising delinquencies in a weakening economy and those two are major concerns, as regard the entire banking space goes. I personally feel that over the last one, one and a half, two months I think quite a few of us relatively were positive on the banking space, so possibly it could be a little bit of unwinding also. But I personally feel that if they react more by 5-7% from the lows of today, I personally feel private banking space has especially some of the better names and it can be looked at from the valuation angle from the buying point of view.

Q: What would be your strategy with the stock like Unitech, right now it is at about Rs 36?

A: If you look at the simple arithmetic right now the base at which we are, I think a quick 20-30% move on either side could possibly make you in a bidding position if you have taken a right call or it could be the other way round.

Considering the weakness right now in the economy and looking at the way the real estate sector is right now - infact the RBI (Reserve Bank of India) is making some positive announcement as far as the sector goes but the fact is how many people are ready to land to this sector at the moment and how many people are ready to buy houses at the moment.

I definitely see the slowdown which we are seeing in this sector. I think this particular sector could be the last one to recover according to me. So it is not the price, which one should be looking at as far as the stock prices go – I think the fact is as and when you see a turn around - I think that is still some time away - as far as buying goes, one should be giving this particular sector a pass for the moment.

Q: What did you make of all the news on Kingfisher Airlines and is aviation a space that interests you right now?

A: Honestly no. I think the moment which we have seen is definitely concerned with news. Even the other day when TTML (Tata Tele Maharashtra Ltd) announced their deal with NTT DoCoMo, it is a stock which not many gave a second look.

On news that these stocks are going up I do not think is a reason enough for looking at those stocks. As far as the aviation space goes I remain negative, I was negative and I continue to be negative.