Mkts likely to recover faster: PN Vijay

Portfolio Manager PN Vijay said that India has managed domestic inflation and the interest rate scenario fairly well. He believes that markets may bleed for some more time due to high inflation but should be out of the woods a lot faster.

Sudarshan Sukhani of Technical Trends said 3,850 is the next support level for the markets. "If 3,850 and 3,600 breaks, then the market has no support for the next 1,000 points."

Excerpts from CNBC-TV18’s exclusive interview with PN Vijay and Sudarshan Sukhani:


Q: Is there any end to this agony?

Vijay: We thought there was some buying yesterday but it got totally wiped out in today’s trade. There would be an end when a couple of these issues get resolved decisively.



The first issue is that of the nuclear deal and the stability of the government. The second is high oil prices and the third is domestic inflation. Unless either of these has been put to rest, one does not see any fresh buying in a large scale.



The nuclear deal should go off the front in about a week or so. The government seems to have got their act together and will slip through this whole thing without any major damage. One needs to wait a bit more in case of inflation. One doesn’t know how much the base effect really is and how much this has impacted inflation. So, we would see inflation for some more time.



Q: Having seen bear markets in the past, do you think that we may be made to wait longer than what seemed the case in January and March? We were all talking about the recovery by the end of the year.





Vijay: I lived through the 2000 bear market, which was the most recent one. There is a lot of similarity; the valuations got very high and the fall was very swift. But there were a couple of major differentials. The broad economy was at that time already starting to go down and we came to a growth rate of 4.5% or so in 2002-03. Agriculture was down as that year had one of the worst droughts. So, things were getting worse from the start of the top in February of 2000. So, the signs were clear.

There was a case of high interest rates as well. The IDBI’s of the world were borrowing at 18% at that time. The real estate interest rates were really high and corporate India was finding it very difficult to borrow. From these parameters, if you look at the last 6 months of downtrend that we had, we have managed the domestic inflation and the interest rate scenario fairly well.



I don’t see any large corporates really feeling the pinch for money. The macroeconomics is definitely not that bad as it was when the last bear market started. So, we will have to bleed some more time for inflation but we should be out of the woods a lot faster.



Q: What is your take on real estate Yesterday, DLF announced a buyback. All stocks were up 10-12% and today they have almost gone back to where they came from. Do you think there is more pain left in that sector?




Vijay: There could be more pain in this particular sector as compared to the other rate sensitive sectors like banking and auto. There is a genuine oversupply in the market. It is not driven by interest rates or even a lack of demand.



Even if one assumes that inflation was at 6% and there was no bad news last year, I still think that the sector was looking for a severe correction because of the sheer oversupply across the country. Punters who had borrowed money to get into allotments were really dropping off.



So, companies like DLF and Unitech that have funded themselves very well, will pull through. But midcap ones like Sobha, Parsvnath or Omaxe and many of them who are cash strapped would take a lot longer to pull through.



Q: Are you buying any of the metal stocks at this point? The good qualities like TISCO and Sterlite of the world were falling at the rate of 10%. Would you buy anything there at all?



Vijay: We did buy Tisco today. At around Rs 650, Tisco is an excellent buy. It is making a lot of money on steel prices. Even with the high cost of production, Tisco is my top pick in the metal sector at these beaten down levels.




Q: Are you buying any banks right now? Do you think you will get better prices over the next few weeks and months?



Vijay: We have been pecking at Axis Bank at around Rs 600 levels because a majority of brokerages, even the foreign ones who are rather negative right now on the markets, have been giving buy signals. This is a superb bank that has capitalised itself very well and has not rushed into home and auto loans. They have got a very well heeled balance sheet. It is a very modern, technology driven bank. So, we have been pecking at Axis Bank at Rs 600 levels.



Q: Is there any hope that we may form some kind of a base around these levels?



Sukhani: There is always hope. We can always wait and expect something better. The chances are very dim. Yesterday, we saw lows of 3,850. If these lows hold on, which means the Nifty doesn't go down again and breaks them, then we rally and reach 4,350 which was the last recorded high. That will show us some strength in the market. There are so many ifs, but this is a possible scenario. The question is about hope. I don't hold much hope because yesterday rally was a classic bear market run up. The bear market is alive and kicking, and today's market action has confirmed that. So, there is a theoretical possibility that 3,850 will hold on. We will start a bull run and reach 4,350. But the chances as of today are pretty low.



Q: What's the next level of support you would watch, because 3,850 is just about 50-70 points away, and that is an hours work nowadays?



Sukhani: Yes, it is and that is the worry. Earlier, I spoke about 3,600, but now with a pivot low being made yesterday, that level shifts to 3,850. If 3,850 is broken, it is equivalent to saying that 3,600 would have been broken, then the Nifty is heading for a freefall because there is nothing to support it for the next 1,000 points down.



Just four months ago when 5,500 was being broken, I had suggested there is a 1,000 points vacuum. That did workout. When 4,400 was broken, some said there is no support. We have seen a 600-point decline. Now at 3,600-3,700-3,800, whatever is one's pick, there is nothing for the next 1,000 points. The Nifty can stop wherever it wants.



Q How do you trade now then, do you just remain neutral and watch till that 3850 and then take a decided technical call?



Sukhani: Yes, because what has happened in two days is that volatility is increased. Traders get killed by volatility, even if they make the right call in terms of direction these intra-day up and down moves can actually stop them out many times. So at this point it's wiser to stay away. Let's wait for the re-conformation that the bear market is intact when 3,850 breaks. If the market moves up, I am not taking long positions. There will be no short positions but the market will convincingly go up to 4,350 for traders to go long now.



Q: Two charts which were particularly weak today are Tata Steel after that big 10% fall, and ICICI Bank which couldn't quite follow SBI in its rally?



Sukhani: ICICI Bank has broken down all support levels much earlier. A target of Rs 500 is within striking distance. It doesn't have a good chart at all.



Tata Steel has been a big disappointment because the chart suggested initially that in its bull run, it would ignore whatever happens to the Indian market. But that hasn't happened. It has broken down significant support levels. While it is difficult to say where it will end up, its no longer a buying opportunity. So, one has to get out of the stock when one can.

Thanks to http://www.moneycontrol.com