Dipan Mehta, member of BSE and NSE expects the market to open strong on account of short covering in the tech sector. He believes that the tech, along with the construction and the engineering sector will see action. He adds that Forex gains have benefited Infosys numbers.
Excerpts from CNBC-TV18's exclusive interview with Dipan Mehta:
At Rs 125 EPS will you have to take a re-look at the stock and where it might go?
Absolutely. We including other analysts will be reviewing the year-end price targets as well as the year-end earnings numbers. I think this is a fantastic set of numbers. I think it is important to note over here, that when they did give the guidance around March quarter after the March quarter results, everybody felt that perhaps the guidance was a bit aggressive.
It has been a bit on the higher side. Maybe they have taken a realistic kind of a view and maybe it is difficult to beat it up by a wide margin, but I think these numbers have clearly demonstrated that those guidance's given at that point of time appear to be conservative. Business momentum is very strong in favour of Infosys and I think this is just the shot in the arm that the markets and the tech sector required.
One word on the forex gains that we have been talking about for Infosys. It will be different for different companies, but will that be largely a positive wild card for technology?
There is no denying the fact that forex gains or the fact that the rupee has depreciated will benefit the entire IT pack. We do not know exactly at which point of time the forex covers have been taken, but on the whole it is a clear fact that for every increase in rupee there are gains on the operating profit margins; whether it comes in other income or goes as part of the operating income, is a matter of detail.
But what is more important is the outlook for the rupee going forward. Remember clearly in 2005, it was the threat that if the rupee were to strengthen further then the operating profits margins and the entire business model for the Indian IT companies was under threat. But now looking forward, the forecast appears that the rupee at best would remain stable and may even lose ground against other currencies. So the environment from the forex point of view is extremely healthy for IT companies.
One word on how the technicals of the market are positioned right now. There has been a fair amount of skepticism. Does it suggest to you that there could be a bit of short covering, which might add zest to the rally if there is one this morning?
Absolutely, although we have seen the open interest build up gradually increasing at this point of time, the longs and the shorts and lot of counters across the board, are evenly poised. That means there are adequate short positions in the markets as suggested by the negative to negligible cost of carry for a host of stocks.
There are short positions in the market and this could be just the trigger, which may make the shorts a bit nervous, and they could start correcting and as one would have seen in the past, short covering can drive stock prices up within a short period of time.
So it is likely that on market opening, we may see the market open quite sharply higher, on account of short covering especially within the tech counter itself where there are adequate short positions. If one looks at Infosys it added about 40% increase in the open interest in the futures side over the past five trading sessions, and except for one, all the five past trading sessions saw negative cost of carry, which means clearly that the shorts and the longs in the Infosys futures market are evenly poised
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What is your sense? Can we build on this, can we break this range that we have slipped into in the last few days on the way up now with what Infosys has delivered or do you think we will still be range bound?
I think we will need more than Infosys to break the range and go beyond perhaps 11,000. I think that tech is one sector where a lot of action will be there, but it has to be supported by other sectors.
If engineering, construction also declare good results, capital goods come in with a positive set of numbers, positive meaning beyond expectations the way Infosys has come, then clearly we could break the narrow range we have been trading in.
But I think it is a bit early for that. Right now, focus will be on tech and as I see lot of midcap techs also doing extremely well. On Wednesday, which is clearly what is required, is that a lot of the retail players would be active in the midcap tech space. Therefore, that is a positive sign. Across the board we are seeing gains.
You were making the point though that we still might be range bound - what does the Nifty trader do for the rest of this series? How do you position yourself?
That is a difficult to answer. Although markets are trading within a range, it is very volatile within that range, and again one could get hit on both sides. I have been advocating that rather than take a short-term trading position, take a smaller position but go for some of the investment base stocks, hold positions for a longer period of time, roll them over. The cost of rollover in any case is negative to negligible at this point of time.
So rather than be a compulsive trader in the Nifty or any of the largecap liquid future stocks, it is better to take a small position in some of the less volatile, less volume, good quality large as well as midcap stocks, and then hold them for a longer period of time. But take small positions because this market is still not out of the woods and then there maybe again a situation where one might have to pay the difference on account of volume prices.
What would you do with the technology pack right now? Would you start accumulating before the other results come in or after on Wednesday's move up from a trading perspective, would you wait for dips?
I think I would take the plunge right now. Clearly Infosys numbers have been a kind of a perfect event for tech stocks. I think we are at a situation where we are looking for defensive stocks; we are looking for areas or sectors where there is growth, I think tech is right in the middle of that.
The valuations are very attractive. Even for the largecaps they are trading at valuations cheaper than what they were earlier. The midcaps have been my favourite and we do have a lot of investments over there. I have recommended them in the past to our clients.
The midcap is where more opportunity lies and if a few midcap tech stocks come and deliver a stellar set of numbers then we may see some very aggressive and fantastic gains over there.
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