Mkts in negative mood right now: Avendus Advisors 2008-02-07 09

Girish Nadkarni, ED- Capital Markets, Avendus Advisors said that the market should be range-bound. Speaking to CNBC-TV18, he said that the overall bias in the market is negative right now after the fall in the markets yesterday and due to the primary markets, where issues are not getting closed.
He said, "I would tend to believe that some amount of speculative buying should come in closer to the Budget with expectations in the Budget and market should trade reasonably positively from here".

Excerpts of CNBC-TV18’s exclusive interview with Girish Nadkarni:

Q: How are you seeing the market from here to the Union Budget?

A: I think this week is a complete washout because most of the Asian markets have been closed because of the Chinese New Year. Therefore, the volumes on the markets have been fairly thin. There will be some amount of expectations about the Budget as we come closer to it.My guess is that the market should be range bound and although the overall bias in the market is negative right now, after the fall that we had seen yesterday and the primary markets where issues are not getting closed, I would tend to believe that some amount of speculative buying should come in closer to the budget with expectations on the budget. Markets should trade reasonably positively from here for sometime.

Q: On the point that you were making about these IPOs, how much of a spill over are you sensing in sentiment because of the disappointments in the primary markets onto what’s happening in trade right now?

A: I think the spill over has largely been on account of the disappointment in the secondary market. The fall that we saw about two weeks back has shattered sentiment quite substantially, we’ve seen erosions of 40-45% in stocks, virtually overnight. The retail investors, as well as institutional investors, have lost a lot of money in this downturn.

Therefore, what was earlier was the greed factor with respect to the primary market, where people applied in IPOs and made quick money on listing and allotment, has now turned into some sort of a fear factor. Therefore, there is a slightly reticent response to most primary markets offerings. I think it’s the secondary market which is reflecting on the primary market and not so much a reflection of the primary market on the secondary market.

Q: What’s your sense of how money flows will shapeup for this market for the rest of the month. Some of that clogged up money in the IPOs is back in the system, but what do you see by way of fund interest?

A: I would think the markets have not necessarily gone down because of absence of money in the markets. There has been a liquidity issue because of the Reliance Power IPO, but I don’t think that has been such a significant factor. I think it’s the global factors which have caused an impact on the sentiments in the market. Also, the sentiment impact has been so sharp that the value erosion that one has seen has actually caused liquidity from staying out of the market. So while there is ample liquidity in terms of money lying with the institutions, and now with the Reliance Power getting listed all the money of the retail investors and the institutional investors that had put in money, the issue coming back, there is enough money on the sidelines to pull up the market when there is either an improvement in sentiment, or there is an expectation of positive news.

I think broadly, going by the market, if one looks at the broad sectors, technology has been an under performer but valuations are now fairly attractive. Auto and auto ancillaries have been down in the market for sometime, but valuations are in the sub-10 price earnings ratios. If one is looking at the life science stocks, some of these stocks too are in the sub-10 category, especially the domestic formulation companies. There are whole host of sectors which have been beaten down and with the correction in the markets, a lot of these infrastructure stocks have come down to relatively reasonable valuation. So the overriding factor in the market is (a) fear of losing further money and (b) the poor sentiment because of global factors.

Q: Which scenario, after this period of consolidation is over within the narrow 1,000 point band, do you favour, a move back to 20,000 Sensex or a retest of those 15,000-16,000 levels?

A: My guess is the markets should be fairly positive in about a month to month and half from now. I would think the earlier top that the index made of 21,000 will be a difficult proposition to break in the short-term. However, I would tend to believe that the markets would trade with an upward bias for the next five-six months, despite the global turmoil.

We have seen one large panic happening and I don’t think we’ll see a repeat of that in the next six months. It will take sometime for the markets to consolidate in the current levels, but the bias would be upwards thereafter.

Disclosure:It is safe to assume that my clients & I may have an investment interest in the sectors that have been spoken about.

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