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Nifty may drift to 4800-4600; time to accumulate: Sampriti

Posted by sandhyaravii on May 28, 2012

The NSE benchmark Nifty will continue to drift down to the 4800-4600 levels, believes Sandeep J Shah, CEO of Sampriti Capital.

The years-old stock market adage, ‘sell in May and go away’, seems to be holding true for the third year in a row, as Dalal Street has lost close to Rs 4,00,000 crore of wealth and the benchmark Sensex has fallen by over 1,100 points so far this month.

Since the beginning of May 2012, the stock market wealth, measured in terms of total value of all listed companies, has fallen by about Rs 4 lakh crore (close to USD 70 billion).

The focus of the stock markets will be on the rupee as cues from the forex markets will play a dominant role. Signs of stability in foreign exchange markets and the rupee improving further will boost stocks. According to Shah, the rupee seems to have bottomed out in the near-term.

He advises long-term investors to start accumulating at current levels. “This is a time to deploy cash since we had recommended some of our clients to hold between 40-60% in cash and that’s a lot of cash. So that’s some of the cash that we would certainly like to deploy now,” he told CNBC-TV18.

Talking sector-specific, Shah says two-wheeler and private bank stocks look attractive post correction. He says one can also look at PSU bank stocks with stable asset quality.

Below is the edited transcript of Shah’s interview with CNBC-TV18. Also watch the accompanying videos.

Q: 4,800-4,900 is here but do you start buying here or do you think you will get to buy at 4,500-4,600?

A: My target for some time has been 4,600 to 4,800. We dipped marginally into that area close to about 4,780, but that’s good enough. There is a cue for us to look in to start nibbling here. There aren’t any immediate catalyst on the horizon, but as I have often said it’s easier to figure out where the market might be headed than to figure out which cue might taken there except in a broad sense. So, the rupee has perhaps bottomed out for the short-term.

There is a lot of gloom and doom all around and all over us. If you were to look at the sentiment I think it’s almost as bad as it was in December when we hit 4,500 and rebounded from there. But it’s interesting that inspite of the pessimism being and the gloom and doom being as pervasive as it was then the markets are higher at this stage. Let’s see whether they hold up or not, but at this stage markets are higher than they were in December.

The rupee fell a lot more than it did last year and inspite of that market has held up. Part of the thing that I have been saying is that a lot of the hot money exited some time back and at these levels it’s going to be longer term investors who will be looking to nibble. This is a time to buy. We finally had petrol price hike, but if the petrol price hike holds and it’s not rolled back then there maybe some hopes of marginal increase in diesel and LPG prices.

I do not think there is any case for a deregulation at all but there maybe a marginal case; it’s not a very strong case at this stage, but there is a case. Globally, there is a very strong probability that liquidity could ease substantially from here whether its QE2.5 or QE3 in the US or whether its further round of quantitative easing by European Central Bank because the European crises is getting worse.

At some point of time this is a strong probability that liquidity will be pumped in. The reason one is cautiously bullish is because and all out euro quake is not in the price so that’s why nibble. This is a time to deploy cash since we had recommended some of our clients to hold between 40-60% in cash and that’s a lot of cash. So that’s some of the cash that we would certainly like to deploy now.

Q: Do you buy with the expectation of a strong rebound on this market or just that the downside looks limited so it’s a good time to start buying individual stocks?

A: It’s more a question of from a risk reward perspective – we are still not recommending or chasing the beaten down sectors where there is no change in fundamentals whether it’s the capital goods, property and infrastructure names. At this stage some of them remain perhaps trading plays because of the sharp corrections, some positive news could see a rebound. But whether they merit a longer term investment case is still up in the air.

Given that we are still quasi defensive if you please, we are still looking to buy back FMCG, pharma perhaps IT maybe looking to add risk there by looking at midcap names, certainly looking to buy some of the private sector banks which have corrected and perhaps even beginning to look at some of the two-wheelers stocks. For four-wheelers perhaps one would want to wait and see the impact of the petrol price hike. We have not reached a stage where we have 100% diesel, but the way things are going it’s not an unlikely or an impossible scenario but you still have a lot of petrol cars which are manufactured and sold so you want to see that impact on volume terms and the impact on the stock price before start to nibble at those.

It is more a sense that there is so much of bad news, can things get dramatically worse from here. What could get worse from here? If you were to look at it one of the reasons why the market is still higher than it was in December is because core inflation is under control, its less than 5%, interest rates have been cut by 50 bps.

If growth continues to slowdown further there is a probability of over 25-50 bps cut increases because food inflation is still a challenge and there are very little expectations from this government anyway. If something were to happen then that would be the catalyst. So you are right that the catalysts are not visible. There could be a range of them, but it is a little difficult to figure out at this stage which one will move.

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