According to market analyst Rajesh Jain, market has got into poor liquidity and poor commitment groove. He says that every time the "market tries to build up confidence, it seems to lose it in the babble that's building up around it."
The Fed factor and the conflicting news on that front are also playing their part. But he asks people not to postpone their buying.
Excerpts from CNBC-TV18's exclusive interview with Rajesh Jain:
Is it likely to be this skittish ahead of the Fed funds meet, or is there something else spinning the market down?
The Fed rate hike is certainly a factor. What's been really driving the market since Sunday has been the internals and build up just ahead of the F&O expiry.
One cannot get away from the fact that one did real vertical take-off from 8800 level, practically 1700-1600 points all the way to 10,400. Across the board, even midcaps joined the party later. There was a vertical rise. That is going to attract selling from several sections of the long-term portfolio investors and also from those who missed out selling on the previous rise.
Ahead of the F&O that vertical jump gives a position build up, which one would definitely want to book profit. So when one did not get it beyond 3060 levels on the Nifty or 10,400 level on the Sensex, it is not surprising that one had sharp position unwinding as well as probably adventurous shorts.
One has not really seen great news flows or great news events happening, which should really be causing these kinds of swings.
How are you looking at steel sector particularly now that Posco had agreed to go ahead and raise some of its prices in the light of Mittal - Arcelor merger? Tisco and SAIL?
One has to look at the volume driver for the Indian manufacturers- whether it is Tata Steel, or Jindal Group or any stocks. Investors will do well to focus on the tremendous demand that exists. There is also the possibility of exports and international players visiting India.
When you have such a volume driver, all corporate mangers will tell you that only thing that can really spoil the party would be margin contraction. That is something that is linked to commodity prices.
If one is a long time investor, don't try to take a call on the way LME is going to move or commodity prices are going to move and what other steel companies will do to Indian steel prices. Instead, just focus on that volume driver. We have an economy, which is hungry for consumption.
Have you taken a look at ITC, HLL, they are pretty much out performers in today's indices as far as FMCG space is concerned?
One has to differentiate fundamentals from the momentary technical drivers. I am sure both of them have witnessed some sharp concentrated buying from institutional segment or deep-pocketed HNI segment. It's for the simple reason that both were offering tremendous value at a great ticker price.
Aside of that in Hindustan Lever, we have seen very conflicting development. One is not hearing very good things about the food business. There is this real estate play. It is offering you success in the health care; personal care and home wash segments. At a price of Rs 220-Rs240, HLL is in a good buy zone. I am sure that there is a deep consolidated buying going on there.
ITC looks good from every angle. What you have seen today is a combination of buying and internals of the market ahead of the F&O expiry. Both are good picks on fundamental level. But retailers would do well not to attempt buying until next Monday. One will really need to see this market settle down before one goes for buys.
Midcaps have gone into quite a grind. Is there something that you are seeing with your clients? Are they getting very skittish on any profits that they make on their midcap holdings?
It is very natural. Midcaps have this tag attached to them that is of illiquidity. Most midcaps will find it very difficult to find buyers when the tickers turn negative.
What
If I am in retail, I would buy Reliance Industries depending on how the market shape up from the following Monday. But aside of these short-term F&O expiry related issues, Reliance even at these levels look like a good buy. The long-term picture is very clear. Tactically, implementation has been good. One would really wait for all the possible dips to buy into Reliance Industries.
Have you taken a look at Ashok Leyland?
Ashok Leyland gives the promise of good commercial vehicles volumes build up. If one compares it with all time high that we have witnessed around 12,700 mark- vis-à-vis the fundamentals, Ashok Leyland is offering a good entry point. The rollover figure itself would point out to the healthy confidence that it's enjoying both from traders and investors. I would use declines to buy into Ashok Leyland.
What is your sense of where this market is heading now?
This market has got into poor liquidity and poor commitment groove. We have witnessed this every time the markets have taken a slip, whether it was in 1996-1997 phase or post 2002.
Every time this market tries to build up confidence, it seems to lose it in the babble that's building up around it. We have the Fed factor; we have conflicting news coming from there. A lot of people are pointing out about 25-50 bps hike over the next couple of months.
Yet we have another set of people, who says that maybe one might just give it the pass. So we have both traders and investors really see-sawing.
On the domestic front, we have the great positive possibilities in terms of Q1 numbers in the monsoon rollout, which is okay, not very encouraging but certainly not frightening at this point. So that positive build up is shaken by the sharp activity, thanks to the F&O expiry around the corner and position build up thereof.
So really it's keeping both the money and the commitment out and people are really running to book profits or to bail out of loss making positions on the first sign of trouble. It is not able to get beyond certain levels. But at 8800, nobody expected the market would go to 10,400.
One is going to see Infosys Technologies numbers as a significant milestone. Just before that one will certainly see what the Fed Governor has to declare in terms of interest rates. But I suspect that there is a lot of buying waiting on the fringes.
If I were an investor who has been waiting to get into the Indian markets, I would not postpone my buying too much. Even though there is a clamour for levels even below 8800, retail investors in particular would stick to quality and not really wait for the bottom to fish.
We have the track record of post Diwali surge in the market, which had a similar trajectory and lot of people were left on the sidelines and could not really buy into the markets, just because one could not handle the volatility, which was largely associated with internals and technicals of the market rather than any fundamentals.
Have you taken a look at Bank of Baroda, how is that looking?
I would not venture into Bank of Baroda because there is some excellent place available in the entire banking space. There are certain concerns in what CRR policies of the RBI can do to the banking bottomlines.
One also needs to see whether credit offtake is going to get impacted by higher interest rates. The action would be in the heavyweight or the pidepiper stocks. Therefore, it is better to go with the State Bank of India or PNB rather than Bank of Baroda at this point. It is better to completely ignore the F&O aspects of Bank of Baroda.
Disclosures:
As an individual investor and as a broking house there will be positions in everything that I have discussed whether strategies or stocks. Therefore, we are interested parties.
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