Kotak Mahindra Bank believes that the market needs some strong global cues to make some major movements. The bank's C Jayaram says that the signals emanating from the Fed's meeting will, in part, determine the market's future moves.
He says the interest rate issue is bothering the fund managers at the moment. And if the cues emerging from the Fed meeting is of a pause or a level off in interest rates, it will be a positive for the market.
Excerpts from CNBC - TV18's exclusive interview with C Jayaram:
Having come back to 10,000, how are you feeling about the market now?
I would say unless there are some very strong set of positive global cues, you could see the market drifting down a little further and maybe testing levels of about 9,500 once again. We are in a pretty narrow range for a period of time.
So you think during this earning season, we will be oscillating between 9,000-10,000 kinds of band?
I would be a little more optimistic and say 9,500-10,500 would be the range. For, I expect that the quarterly numbers to be pretty good and in line with expectations. I do not sense that as being a problem. But the bigger issue at this point of time is that the market needs some strong global cues to make some major movements.
In that scenario how are you expecting liquidity to shape up especially when you speak to some of your foreign clients? How are they approaching the Indian market now?
Many of our foreign clients tell us that they have not been facing any serious redemption.
Your thoughts on cement and steel?
In this sort of a market, cylicals are not the greatest thing to get into and certainly not into steel. Cement is a little different, if one is willing to take a longer-term view on the infrastructure story. In shorter term, cylicals are something, which are not very hot.
In the state that we are in at this point, how important are earnings? Are we largely going to keep moving in tandem with the global markets or can good earnings turn the tide for us?
Earnings are important in the sense that one needs to reinforce the theory that India story remains very much intact, and that both the macro as well as the more micro corporate earnings are in good shape. You need those earnings to come out at least as per expectations to keep the story going.
But beyond that for the market to make big moves, you still need strong global cues. To that extent, we would be broadly in tandem with global markets.
How do you view HDFC Bank and ICICI Bank, post the Fed hike?
Overall, the banking sector has pretty much factored in the rate hikes. I do not think that in a rising interest rates scenario there is that much to worry about for the banking sector. In fact banks, which have a higher set of casa ratio (current account and savings account ratio) will be possibly impacted as interest rates go up.
Where does telecom go from here because VSNL came out with a disappointing set of numbers but the stock has done okay; however on the other side there are other stocks like Reliance Communications Venture Limited, which have had a very bad couple of sessions?
Honestly, I do not want to comment on specific stocks. But broadly telecom sector seems to be pretty much in line with market expectations. If you take a longer-term view, given the set of demographic story, telecom is a sector worth staying in.
Any thoughts of FMCG at this point and the kind of moves these companies are making M&A wise both domestic and foreign?
Broadly as a sector FMCG is a sector, which certainly looks good. It is a sector, which you would call a defensive sector.
The fact that many of these M&As are actually happening on the FMCG scene is positive from a market's perspective. For, clearly whether it is the company, which is taking over or the company, which is getting taken over, both of them are in play. To that extent make them far more interesting stocks.
As the frontliners find their feet between that range that you set up 9,500-10,500, do the midcaps move the same way or do you think there is a potential for a deeper cut?
In this whole meltdown, from the highs of 12,500 to the current levels, the midcaps have suffered far more than the frontliners. To that extent, I do not see that changing very much.
Once the overall cues turn positive then midcaps could have a much bigger upside. If you look at it from a pure valuation perspective, today many more midcaps have far more justification in their prices than the frontliners.
Any thoughts on where we go from here?
At the fundamental level, I think it is still capital goods, engineering, autos sort of story. But technology is looking interesting right now for a couple of reasons. One, visibility of earnings is probably far clearer than many other sectors. Two, the rupee, which has weakened considerably, has helped technology companies. So that is more a short-term phenomenon. But, on a longer term, I would still go with the infrastructure story as well as the demographic story.
Do you see volatility and an inconsequential trading session tomorrow as well?
Tomorrow, it partly depends on the Fed thing. Most people have factored in a 25 basis points hike. I do not think that is so much in question. The next cue is based on tonight's Fed meeting, the FOMC minutes. When analysts go through the FOMC minutes, they look for cues to figure out whether they are still talking the language, which suggest further hikes or are they talking a language, which suggest that they have levelled off for the time being. That is the single most important factor that will influence markets for the next few days.
What is your sense if indeed they have a clear picture of what they are going to do in the next few meetings and they do that 25bps hike and maybe say that we are pausing for now, market is setting up itself for a rally and conversely if they do not do that are we looking for a sharper fall?
If the FOMC minutes seem to suggest that they have levelled off or at least paused for a period of time before the next hike then that will be a major positive for the market. However, if the minutes seem to indicate that further rises are on their way then that would be a negative.
For the next 6-12 months would you say the emerging markets have seen the best ride and it is behind them?
If you are willing to take a slightly longer-term view, the issue, which is bothering most fund managers, is the interest rate hikes. My sense is that over the next 3-4 months, you would probably see interest rates peaking certainly in the US and in India as well. Post that, I would expect broadly equities to do better. Within equities, emerging markets would still give the best returns, and to that extent would be the best performer.Sensex Rise and Fall: Complete Coverage
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