PN Vijay, Portfolio Manger said that India is feeling the full impact of high crude prices and it does not even have a strong rupee to cushion that effect. He said that the agricultural harvest in India has been good so the pressure from inflation on food is abetting.

Vijay said that a lot of the bad news had factored in the fall from 6,100 to about 5,000 on the Nifty and the good part is that the market never discounts the same event twice. So he does not see the market falling from here unless inflation number continues at around 7.5% to 8% in the next 4-5 weeks. He said that the market would remain rangebound unless there is some correction in oil, inflation or IIP numbers.

He feels the market may just rally post inflation. "I don’t think the market is going to react from this level any worse to inflation alone."

Excerpts from CNBC-Tv18's exclusive interview with PN Vijay:

Q: The global picture seems to be turning little more sour through this week for us?

A: Yes indeed India is getting the heat of the oil shock, oil is going to USD 135 and people are worried about India because the rupee is just catapulting. It is across 43, which means that we are getting the full impact of the high oil prices. Before we had a strong rupee to cushion the oil shock a bit but now we are so under recovered. Our oil prices have not been set for long time. So people are worried about the current account deficit and the impact on the fiscal deficit. One needs to see where it will all work out.

The only silver lining is that probably there is some global action being taken to curb oil prices. In India the agricultural products have had a good harvest. So the pressure on inflation from food prices is abetting quite fast. So if all that happens, things may come to some normalcy but right now the macro factors about India are getting so bearish that India is falling in fact a bit more than global markets.     

Q: What do you think we might get away with then? Will it remain that range bound move where we start seeing air pressure or air pocket pressure when we get to the 5,100-5,200 mark and then again a rebound when we get closer to 4,900 or might things turn around against this large expectation of a range bound move?

A: The good part is the market never discounts the same event twice. The market from January onwards has been discounting the inflation and interest rate scenario in India. So a lot of the bad news is factored in the fall from 6,100 to about 5,000 on the Nifty. So unless we get something continuous bout of 7.5 to 8% inflation for the next four-five weeks in a row, I don’t see this market falling from here. But we need something very good on the macro level, fall in inflation or a fall in oil prices or something like that or some good IIP number for the market to move anywhere up otherwise it’s going to be range bound.  

Q: What about the rate sensitives especially these banking stocks? Is the nervousness warranted on the space?

A: The nervousness is surely warranted. RBI may hike rates. They might hike CRR and there will be a bad time. The interesting thing about banks is that they have reported some very good earnings. It is surprising how in the last quarter, when things really got quite bad on the inflation and interest rate front, these guys came out with a very strong growth and surprised everybody. The currency in dipping with this high inflation, and banks which are the most rate sensitive followed probably by auto and real estate.

Q: Any thoughts on some of these midcaps IT stories. Now, not so much for the big four but things like NIIT Technologies, and MphasiS which to an extent has been seeing a bit of buying interest?

A: IT is now fast coming back into the portfolios of fund managers for the simple reason that the rupee is at 43 per dollar. We had a strong run during last four months on the top ones and people are selectively looking at some of the IT companies which have a global business model that is not restricted to the US, like NIIT Technologies and to some extent i-Flex, which piggybacks on the Oracle parentage. MphasiS is driven by the huge takeover in California.

Q: You track capital goods as well. What have you made of the kind of numbers that have come out from companies like Thermax and Voltas because that solid earnings performance doesn’t seem to have been delivered this quarter?

A: True. Voltas and Thermax are all excellent companies. These companies are under EBITDA pressure. There is no problem in the order books that they have. All of them have three-four years orders running in. But the strong operative cost like steel and every cost like copper, base metals, labour, wages, and inflation have hit them hard. They normally don’t work on great operating margins like NIIT. So, the whole sector is under terrific EBITDA pressure from BHEL downwards. The stock market recognises these as top class companies but right now they have been downsized in many portfolios.