Nirmal Jain of India Infoline says that everything depends on Budget but adds that the fall in the market on Tuesday has nothing to do with it. He adds that the market needed a correction at the current altitude of 14,700 and that the Budget will set the direction for the markets from now on.
Excerpts from CNBC-TV18's exclusive interview with Nirmal Jain:
What's your sense of the direction from here?
It all depends on the Budget. Market has consolidated and some of the froth has gone away, so it's good. Market needed a correction at altitude of 14,700 and Wednesday's Budget will set the direction for market from now on.
How much of this fall of last 1,200 points is because of the Budget or is it because it's factoring some other uncertainties which have nothing to do with the Budget?
The fall has nothing to do with the Budget. If there is an excess leverage position they have gone out of the market. But the fall has been triggered by the concerns about interest rate and inflation on one hand and to some extent due to midcap fall which has been even more steep in the last two days.
Do you expect to hear anything in specific on STT or on capital gains?
There have been talks of long term capital gains being taxed but I doubt whether that will happen because that will not be in line with long term policy of the government. So there has been some talks that there will be some taxes on long term capital gains but I personally don't think that's coming.
You were talking about the pressure on specific stocks. Do you expect some of these new listings to get into a more turbulent phase?
Yes quite a few, in fact there has been IPO mania and many promoters with not so many proven record were trying to tap the capital market just to take advantage of the euphoric market, I think those kinds of things will get corrected and settled because all these small companies IPOs and IPOs of companies with exaggerated valuations will now not be taken by the market.
If in Budget the corporate surcharge goes away it will be a direction which is right and there are certain external things that are negative and particularly the inflation part of it. We must not forget that the economy is growing very strongly and stock market, which is barometer of the economy, can't ignore that fact. My personal view is that we are still in long term structured bull market and when the market has gone up by 300 per cent points, 10-15 per cent correction is part of it and we shouldn't view that as a reversal of the trend.
What is that you have recommended to your clients at this point, sit on more cash or look for buying opportunities?
When we say look for buying opportunities then we mean the sectors, which are not affected by current trends, which are FMCG, pharma and IT. These sectors won't be affected by rising trends in interest rates and inflation and they in fact benefit from higher inflation. Once you look at these sectors and increase weight of your portfolio in these three sectors.
What's the problem out here with the FMCG stocks?ITC is down to Rs 164, HLL is down to Rs 185.
Today across the board there is downtrend in all the stocks but this is a good opportunity for people who are looking at long-term steady returns to pick-up these stocks.
Anything in specific that you are expecting for sectors like IT and auto?
A: There could be some excise duty cut in auto and for IT I am not expecting anything specific in the Budget. One factor, which could have affected the sentiment in last few days, is double taxation and treating the Budget because most of the FIIs which are registered in Mauritius.
I think if there is something on this that can affect FII sentiment or people's sentiment about what they expect from FIIs, could there be a selloff because most of the FIIs will become taxable. This could have been one factor, which could have affected things in last few days.