C K Narayan of ICICI Securities says that the Sensex could dip to 9,000 levels by December. He sees the Sensex testing the June lows by December.
Excerpts from CNBC-TV18's exclusive interview with CK Narayan of ICICI Securities:
What do you think, are markets headed for a new high very soon or will they correct from here on?
My earlier view was that markets would reach about 12,000 levels by August and it is nearly there. At the moment this is a question, which is vexing the minds of most people in the market, which includes myself, let me admit.
I still would like to stick with my earlier scenario where I thought that markets would only rally up to around near the previous stops, but not really exceed the new high. Some of the reasons for this would be a host of confusion, which prevails in the market right now because there is such a variety of reasons, which could put the balance on either side.
The first is that this market, which went down by something like 29% from the May top has managed to pull back almost the entire thing, it is 28% up from the low. Surprisingly, this has been done without much flow from the FIIs. If you see point-to-point August 2006-August 2005, we are at about 50% of what the FIIs really put into the markets, we had about Rs 30,000 crore in 2005 and Rs 16,000-17,000 crore in 2006.
The flow from the domestic side has also not been very hot. On the other hand, I think the market has really gone up because of lack of selling. So it has been a little bit of buying, which has provided the momentum, which has carried the market up sharply.
At this juncture, there isn't any significant news, which can take the market either up or down; on the positive side one hears that the carry trade from Japan and other places are now emerging again.
One also hears reports of how the domestic side is seeing a lot of fund inflows, so from the perspective of the money flow it seems positive. But then, the fact also remains that all the funds are fairly reluctant to go out there and try to buy stocks, as a result of which one does not have an all out attempt at buying.
I think what can really tip the scales here would be some sort of an event or news, which has to be overtly positive. Only in that case I think that markets would be have a chance to move up and make a new high, but to answer your question in one line, is there a chance for a new high, I would still say that I would stick with my earlier view that the market will not make a new high.
This is only a corrective, which is a strong corrective going up to somewhere near the previous highs, but not making a new high.
How do you expect the journey from here up until those 12,000 levels to be? Are markets likely to correct a whole lot more or move in this general direction of putting on about 50-100 points slowly and steadily?
I think this is a new habit that the market has developed and it looks to me that it will persist because people are adequately hedged. All portfolio holders are adequately hedged through the puts, so the put-call ratio is at very high levels over the last month.
Therefore, there is no immediate recourse to selling even if the market peels off a bit. So in the absence of selling, one will not see any major declines.
What
If my view that the market is corrective is right, then I would think that by December, markets would be testing the lows that one saw in June.
You think markets can go up to 12,500 kinds of levels and then retrace all the way to 9,000 levels?
Absolutely, that is my view at the moment.
What about the other scenario, which has also been tipped by a fair number of people that the market does not make it to beyond 12,000 levels just yet, maybe softens up by 800-1000 points and then later in the year, this calendar it makes an attempt to cross that high and successfully does it, how would you weigh the chances of that scenario, a correction now and bullishness later?
I am not in that camp. I think if markets do not make it now, they will not make it over the next six months or eight months even. In fact, I would be seriously surprised if the markets make it anytime during 2007 either.
Technically, are our markets doing something or are they very similar to what is happening across the globe in markets like Asia or emerging markets, or this is a move of our own where markets fail to take out new highs?
I think it is pretty much across the whole globe. One is seeing similar patterns across almost all the charts. There may be few exceptions here and there, I do not recall, but then pretty much across the globe one is seeing similar patterns.
One is seeing a fairly decent rally, may be Korea
could be a bit of an exception where it changed around. But other than that, I think all the other markets are moving in a somewhat similar fashion. So I do not see it as something exclusive to our markets in India.
Technically speaking, what convinces you or what parameters convince you that this is not a bull market, which is resumed because from 8,800 levels markets have come up to 11,800 levels, what convinces you that this is just a corrective or a retracement and not a resumption of a bull market which will eventually take us to new highs?
I am a believer in the theory of cycles, which is what I predominantly use for long-term forecasting. When I say theory of cycles, it would also include the Elliott Wave patterns. Within the Elliott structure, I do not find indications of the present move up being part of any new kind of impulse. I know there are reports out there which are calling for this being an impulse, but then in this market one has four different views.
My view is that this is not an impulse; it is part of a corrective structure. It is a part of a complex kind of corrective structure, which has an outside target around 12,020 levels or thereabout, or if it gets into serious momentum up-runs, it could be exceeded a bit. But at the moment that is the pattern, which exists.
In terms of the cycles, the kind of projections I had made for the year at the start of this year seems to be still sort of running out in almost a true manner that I projected it. So I don't see any reason to disbelieve what my charts say, what my cycles say and my cycles are pointing to a declining quarter ahead from September through December.
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