Mkts may see short, narrow rallies till Feb: Religare Sec

Here is a verbatim transcript of Sangeeta Pushottam’s exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Do you believe as well that the market is slowly but surely heading back to those October levels?

A: I think we are going to get close to the lows again. I cannot say for sure whether we will break them or not but the market is going to test the lows probably at least once and perhaps maybe a couple of times because the news flow is really very mixed. There is little to suggest to people who bought at the lows that they should keep holding on and therefore not take profit at higher levels. So what we are really seeing is fairly short and narrow kind of rallies and that’s the typical pattern that you do see after a sharp fall like this before markets start to form a base after having fallen so much. We need to be prepared for this over the course of the next two-three months.

Q: What's your call on Reliance — that’s the one stock which hasn’t broken down to the October lows? At these levels of Rs 1,100-odd, are you optimistic or do you think the commodity pressures will eventually weigh down that stock?

A: Fundamentals are one thing and it is also a question of liquidity flows. So if we look at many stocks in the markets, quite a number of stocks don’t really justify the valuations if you really look at businesses themselves. The question really is which have been the stocks which have been basically holding up the market — have they fallen less or more are they liquid enough and that’s really what is leading to weakness in a number of stocks. Wherever people can get out, if they have liquidity pressures, they will. That’s what also causes a number of stocks prices to fall. So, stocks like Reliance and Bharti which have actually relatively been better of may see the pressure.

Q: How would you approach this entire metal space because the performance will be important for the Nifty’s performance as well?

A: I think metals are going to remain under pressure for a while because if we are looking at the next several quarters of pressure on GDP growth across the world, then to expect the metal space to bounce back is not really realistic. So, I think at least for the next two-three quarters, we are not likely to see much good news coming out.

What we need to watch out for is: typically stock prices will try and bottom out before the fundamentals do, and that is something that may happen over the course of the next three-six months. So, that could be a key trigger. But I think it is just too early to bet on that yet.

Q: What is going on with IT? Over the last couple of days that sector has broken down led by the likes of Wipro, HCL Tech, even Satyam. Are there any fresh concerns that have come to the fore?

A: No, not really. As I have said before as well, we need to look at the IT sector as an export-oriented sector. Therefore concerns on what is happening around the globe, particularly in the western world, which are their main markets, are bound to play on this sector.

It is not yet at a level where you can say that there is really going to be no more bad news. We actually haven’t seen too much bad news come out in terms of either cancellations of large contracts or postponements et cetera. There is an expectation that that may happen towards the end of the year, or in the early part of next year. Therefore that is what the stocks are going to try and price in.

So, I don’t think that we have seen the stocks completely price in that. So, till that is out, we are likely to continue to see pressure on this sector.

Q: If you were to look out from slightly longer than the next few weeks, do you think the market still has it in it to make some kind of a countertrend rally by the time we are done with the year?

A: I think at some point it will — perhaps maybe not immediately over the next say two months but beyond that. Right now I think the market is just grappling with multiple bouts of bad news. While there have been positives coming from policy actions by governments as well as central banks, their impact will take time to be felt. They get counteracted by a lot of negative news coming from the corporate sector.

So, I think the market is just trying to digest this whole information, which is why it is volatile. You don’t know how bad ‘bad’ is really going to be. Once that sense starts really coming through, there will be a phase where we will see relatively better news come in and markets could rally. So, I am not ruling that out. But I think we will still go through this fairly painful process over the next couple of months at least.