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(Interview Transcript)
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Krishna Kumar Karwa, Managing Director, Emkay Share & Stock Brokers, does not see any near-term triggers for markets to move up. "The markets may test lows in the next few months, if crude rally continues."
Karwa is bullish on IT on account of the rupee movement. "Infosys guidance looks positive, and valuations look attractive."
He is also bullish on steel. "The sector will give decent returns in 6-9 months despite government's moves. I am positive on Tata steel, and Sesa Goa."
Excerpts from CNBC-TV18’s exclusive interview with Krishna Kumar Karwa:
Q: What are the chances that this market might go back to test the lows we had seen earlier this year?
A: There is a bright possibility because of the way crude oil prices are behaving and the government’s focus being on inflation. So, there are no near-term triggers for the markets to move up. We had the result season which was decent and the markets did rally from 4,600-5,300. Now, there are no new triggers for the markets to sustain that rally. In fact, we have already corrected and sentiment is weak. If crude oil price continues the way they are, then there is a distant possibility that in the next few months we may test the lows again.
Q: What is your sense of the impact we can have from these crude prices because through last week the damage was spread across refining side as well some of the big guys like ONGC are suffering? What is your own estimation of the impact for the listed universe from crude?
A: It’s not only about impact from the listed universe as such, it’s more on the overall fiscal deficit of the country and the impact that it could have on interest rates and cost push pressure etc. So, it is going to have an all round effect on the economy. That’s going to be more crucial. It’s not only about India, it’s about the world economy per se and how that’s going to get impacted because of the high crude oil prices. If there is a further slowdown, it could have its own impacts on the Indian economy and the corporate world as such.
Q: How do you think institutions would be approaching India in the near-term? What are your clients feeling about the market right now?
A: We are not seeing any positive or great inflows as we have already seen and the risk aversion is still very high. So, they are still waiting for stability to come again. We have seen some concerns on write down etc in the US and AIG, or American International Group, has also talked about further losses. So, the risk aversion still seems to be very high and they are procrastinating rather than putting in their money.
The only positive, I see, is that obviously high oil prices affect a lot of people but there are oil exporting and producing countries who will have huge inflows. So, it would be important to see how they use the kind of resources that they will be getting. West Asian countries are seeing almost a trillion dollars every year in inflows. How they will use those resources and where they will invest will be key? Any small trickle from there to countries like India could be sufficient. So, it’s very important to see how they behave in the coming months.
Q: Are you recommending IT to clients?
A: IT is a very decent play and we have been bullish on IT. The primary reason being the way the dollar-rupee is behaving. So, there are positives like the guidance given by Infosys about the growth that they expect in the second half of the year. Valuations are also reasonable, under ownership is also high. We believe that with all these factors, percentage appreciation could be decent from here.
Q: We saw quite a bit of selling in the cash market through last week on the FII side. What are you hearing from the institutional desk? Are people actually cleaning off a bit, taking profits off the table?
A: We have seen that some long-only funds have used this rally to par their position. There has not been any hedging of positions, but actual cash delivery selling which has taken place from some long only fund. It is natural after almost 15-17% upmove on the Nifty from 4,600-4,700 to 5,300. So, some funds have taken money off the table.
Q: If your sense is that the market is likely to go back towards the lower end of its trading range, where would you cap the upmove? Do you think 5,000 remains a ceiling for us or are we going to even attempt a bit higher this series?
A: I believe that the mid-term range is at 4,600-5,300. The sentiment if it improves, or if crude oil prices are controlled, in the near-term then it can go up to 5,200-5,300 because when one enters that territory the valuations, also based on earnings estimate, move more than fair value. So, the market should move in the range of 4,600-5,200-5,300. I am not saying that we are capped at 5,000.
Q: How are you approaching steel now as a sector?
A: We are bullish on the steel sector which is seeing high international prices. For the next six-nine months, we believe that the steel sector should give decent return despite the export duty and rollback of prices etc. It is more a function of demand and supply and this is a function of international rather than domestic. We are very bullish on Tata Steel and Sesa Goa both from iron ore and finished product prices point of view. So, we are recommending Tata Steel as an outperformer.
Disclosure:
It is safe to assume that my clients and I may have an interest in the stocks or sectors discussed.
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