Investors need to look at extent of forex losses in Q4 results, he said.
Gautam Shah of JM Financial Services said the Sensex could go beyond the 18,000 levels over the medium-term. "Emerging markets, Dow Jones looking very good on charts, which is a positive for India. The markets are likely to come out of consolidation range in 2-3 weeks. The Nifty is likely to cross 5,000 in the near-term and then go up to 5,300."
He feels it is a good time to buy. "The Sensex and Nifty may have seen the worst at 14,700 and 4,450 respectively."
Excerpts from CNBC-TV18's exclusive interview with SV Prasad and Gautam Shah:
Q: We have had a bad inflation number and decent IIP number, do you think we can digest all this and move further higher in the near-term?
Prasad: I think so. Perhaps the worst is behind us, with a caveat that once we know the numbers pertaining to the derivative losses, which have been harping on quite a few times like a stuck tape recorder. Subject to that, I think things are definitely looking better if at all liquidity in the money market is any sign. Liquidity in the money market have improved post March 31. I would think that things are slightly better from the last time we spoke.
Q: Technically, we have not gone back to revisit those lows but we haven't made a very big upmove either, convincingly above those 5,000 kind of Nifty levels. Are you confident that we can move up?
Shah: Yes. For the last few weeks, our view has been that the markets could have seen the worst at 14,700 on the Sensex and 4,450 on the Nifty. The reason why the Indian markets have not done too well in the last 7-8 trading sessions is because you have some important local news flow, which are not letting the market move higher. If you look at some of the other emerging markets, they are off 10-15% from their recent lows. The US markets have rallied extremely well in the last 7-10 trading sessions.
After a very long time, the Indian markets have tasted an underperformance, they are not used to it. Over the next 2-3 weeks, you should see the markets get out of this consolidation range. We believe the kind of volatility, which the markets have seen in the last 7-8 days, is purely a consolidation range. People are confused; there is no conviction in this market.
In the next few trading sessions, you might see that move above 5,000-5,050, which a lot of market participants are talking about. Once that happens, our medium-term target of 5,300 on the Nifty and about 18,000 on the Sensex should come by. So, we are positive and any decline in this market is a buying opportunity.
Q: The market has been struggling a bit for leadership. Do you think some of these largecap names like Reliance Industries, RPL etc, can do the job of leading the Nifty up beyond those humps that you spoke about?
Shah: Absolutely. It is because of these largecap stocks that you mentioned that the Nifty is maintained at these levels, because banking is going nowhere. The banking sector itself is an index heavyweight.
But eventually once the inflation fears are out of the system, even banking will start to participate. Once that happens, you will have most stocks moving together. But at this point, if the markets have to really move up further from these levels, the leadership in the market is going to change and that leadership might just come in from the technology sector. Let us not forget that a stock like Infosys topped out last February at a price of Rs 2,400. Since then, it is just making lower tops and lower bottoms, coming down to a level of Rs 1,300. For the first time in many months, you have positive triggers in some of these technology stocks. Going forward, over the next couple of months, you could see technology making a comeback and might just take the lead from some of the other names like the Reliance Group or some of the banking stocks. If that happens, the markets can really rally from here.
Q: What about capital goods? We got a bit of a shocker over the last couple of weeks as these stocks almost got de-rated - BHELs and L&Ts of the world. They have bounced back in the last couple of days. Are you a believer or a sceptic here?
Prasad: I am a believer. I think there was an overreaction to these stocks. We have got spoilt by the kind of numbers we have seen from these companies in the last few years. So, when BHEL results came the markets perhaps overreacted and there was a general somber mood in the markets around that time. So, that also added to the kind of downgrading that happened. But I genuinely believe that we are a growing economy, we need a lot of investments and if we need investments - which means infrastructure and capital goods - and these are two solid companies. These are companies with long years of track record and very clear what businesses they are doing.
So, as far as these two stocks are concerned and indeed the capital goods space as such, I don't really see why one should be negative on the capital goods space as opposed to some of the other spaces that we have got to look at- the banking or the IT space. There are a lot of other factors that have a role to play, the IT - rupee-dollar exchange rate, as far as banking is concerned, inflation, so on and so forth.
As far as capital good is concerned, it is a no-brainer that India very much needs a lot of investment. We need these companies to be chugging along. So, I am clearly a believer. I think there was a bit of an overreaction and this correction was very much expected as far as I am concerned.
Q: How are the technicals looking for the L&Ts and BHELs?
Shah: I think they could have seen their worst in the near-term. Look at the way some of these stocks have bounced back from their recent lows. BHEL for the last 5-7 trading sessions, L&T for the last few days and Siemens has seen a good bounceback from support levels.
So, you have seen medium-term support levels being tested on all of these stocks. Therefore, I am forced to believe that the worst for some of these stocks could be over and therefore you might just see a recovery of about 10-12% from these levels. So, capital goods as a space, we like it technically. But avoid trading into them. Take more of a positional call if you are taking a one to one and half-month kind of call. That is where you could make big money in this space.
Q: What about the banks? They are just not getting out of the woods. Private banks rally and then slip again. Public sector banks are hammered down under inflation fears. Is it an opportunity or do you see them continuing their underperformance?
Prasad: I will still wait and watch this space because I don't know how much of all the problems are already build into the price. I guess also one will wait to see what the RBI Governor comes out with, in terms of CRR hike or what is RBI's view on interest rate.
The result from some of the larger banks is something that markets will wait and watch and look out for. So, this is a wait and watch period as far as the banking space is concerned. Typically, when we are in a higher inflation scenario, when interest rates are expected to go up, this is a period when typically people tend to be lighter on banks. So, it's a wait and watch period as far as I am concerned.
Q: How are technicals looking for Yes Bank, ICICI and HDFC banks?
Shah: From a short-term perspective, the entire segment will be an avoid because you are not seeing clean moves. Some of the stocks move up for one day and the next day they are down back to support levels. So, there are no clean moves and based on relative strength studies you have some of the other sectors that are doing much better and the good example is oil and gas.
From a trading perspective, banking should be avoided. But from a longer-term perspective, this is an opportunity because some of these stocks have lost 50-60% over the last couple of months. Once the inflation fears are out of the system, which has to happen eventually and it's a matter of few weeks or may be a few days. Once that happens, you will see some of the banking stocks recovering quite fast. From a one-year perspective, you should be buying into these banks. But from a trading perspective avoid and get into some of the other sectors.
Q: After some time, we are seeing some interest getting back to the old infrastructure plays which have underperformed for the last three months. Are the charts suggesting that they have bottomed out?
Shah: More and more stocks will gradually begin to participate. It is the runners that are really taking the lead. Punj Lloyd, during the good times, was a favourite of a lot of market participants. It is a momentum stock. So, just like this stock, you will have a lot of midcaps and a lot of infrastructure, realty stocks that can gradually start to move.
Most of these stocks could be building a base over the last 7-8 trading sessions. Once you have breakouts taking place, which should happen over the next couple of weeks, you will see these stocks run away 10-20% in quick time. So, we like the space and there is a lot of money to be made in this sector.
Q: Many of your technical peers have been suggesting that we could have an upmove, but it will be a short-term upmove, which will be followed by another leg down. Is that your belief or do you think we are out of the woods and it may not stop at 18,000?
Shah: Well, it could well exceed the level of 18,000 over the medium-term, because we were earlier talking of 14,700 as an ideal worse-case scenario level for the Sensex. We have seen huge support level hold in the last few weeks despite local negative news flow. A couple of times in the recent past we have tried to move towards that level. But every time we did that we saw a lovely comeback.
More so, because emerging markets have started to look strong in the charts. You have a lovely bottoming pattern for the Dow Jones Industrial Average. Once the market moves above 12,700, you could see a 800-1000 points rally on the Dow over the next four to six weeks. So, in that kind of a scenario, we believe that we are out of the woods.
It does not make sense to be pessimistic at these levels. Yes, you will see pullbacks and volatility like what we have seen in the last 7-8 days. But from an investor's perspective, this is a great opportunity and it does not make sense to keep talking about 12,000 at these prices.