News Detail

• Tighter Western sanctions on Iran are making crude a difficult commodity for countries to get their hands on. Prevailing tensions over Middle Eastern supplies has IMF chief Christine Lagarde cautioning that supply disruptions from Iran could push oil prices up almost 20-30%, at a time when the price is hovering at USD 125 per barrel. Gaurav Doshi of Morgan Stanley says Nifty could return to 4,950 if crude moves towards the USD 135 per barrel mark. Even as a house, they are bearish on crude. Almost all global markets have been correcting since the start of 2012, with the US and European economies facing exhaustion. Amidst all the volatility expected, he sees 5150-5600 as a range for the Nifty.

• Ever since the Budget, bond yields have risen due to the Rs 60,000 crore increase in the gross borrowing programme of the government and the 5.1% fiscal deficit target laid out by finance minister Pranab Mukherjee.Market analysts had been factoring a possible rate cut announcement in the April credit policy meeting. "The only thing is that this range could get extended by 200 points on the upside if we were to get some sort of a rate cut or some sort of positive indication from the RBI towards the April meeting," he adds.

• However, given the current environment and the RBI's unpredictability, the market now is not so confident of a) An interest rate cut and b) If it does happen, what the quantum could look like. Global uncertainty makes him underweight most sectors. Most global economies are operating on underlying eurozone issues. Other than being bullish on IT as a space, Doshi tells CNBC-TV18, he doesn't see many growth prospects or where demand and consumption can possibly come from right now.

• For now, he tells investors to stay invested in private banking names as he sees PSU banks underperforming on the back of the bond yield situation.

• Q: Post Budget what are you telling your clients? Is it going to be range bound or do you see any downward bias?

• A: We are telling our clients the same thing that we were telling them before the Budget. I don't think the view has really changed much. It's just that one should expect the markets to trade in a range. As of now 5,150 on the spot and 5,600 on the higher end seems to be the range. The only thing over here is that this range could get extended by 200 points on the upside if we were to get some sort of a rate cut or some sort of positive indication from the RBI towards the April meeting.

• We could also extend lower to about 4,950 on the Nifty spot if crude was to break the USD 125-126 band and head towards the USD 135 mark. Another sort of interim worry that one could have is just the fact that we are seeing some signs of exhaustion in the US markets as well as on the DAX. If you look at volumes in the DAX and FTSE and even in the US markets, the markets have been moving higher but slightly lower on volumes.

• We are seeing some sort of toppish signs emerge there. So there is a possibility that we may get a tactical correction in global markets which could maybe pull us lower but the range seems pretty wide. After the sort of rally we have had, one should certainly expect this sort of volatility.

• Q: So a 200 point extension would mean you see the ceiling at 5,600 and a rate cut could imply 5,800 or have you set the benchmark at a different position on the upside?

• A: I think 5,150 to 5,600 is the range that this market is going to work with under current circumstances. Anything incrementally on the positive side whether it is politically or whether it is via the RBI or whether it is in the form of crude cooling off, to me certainly extends the range higher. I believe we do have a bullish bias. But I also just think that the market is really at an inflection point.

• I do believe that in the next couple of weeks we would get some sort of clarity in terms of where this market is heading if you are moving higher post this breakout of the 200 day moving average. We have come back, we have retested it and we are consolidating near the 200 day moving average. So we will know pretty certainly if we are going to move higher from there or we are going to move higher from there or we are going to break back lower. So I would believe the markets are in inflection point but the underlying bias is slightly towards the positive side right now.

• Q: Are you guys beginning to take a bearish call on companies which have a large global exposure? Just as an example, Tata Motors was down 4% yesterday but it also affects a whole clutch of metal stocks?

• A: Tactically, on global sectors we are underweight. For example, we are heavily underweight on materials. The only global sector that we continue to be incrementally positive on is IT. We just think that globally companies that are operating with a landscape such as Europe are going to have issues.

• No doubt there is a liquidity boost that's bailing those economies out but we don't see growth prospects emerging and we don't see employment increasing. So don't know where that consumption and where the demand for a company's products is going to emerge from. It's not like we have just turned bearish but we question the fact that global growth is missing today and therefore it is not only for companies but even for crude for example.

• As a house, we are actually tactically bearish on crude because we believe that consumption led price rise is not going to happen. It is basically a geopolitical issue that has brought the price of crude up but we see no fundamental justification as to why crude and commodity prices should move higher. In fact, we think they will stay flat to maybe move lower from here.

• Q: How are you calling bond yields for the next few months given that they have moved up post the Budget? What would your stance be on banks which seem to have corrected a bit?

• A: Bond yield is something that the market has to take not of. So that is what played out with the Budget with regards to the fiscal deficit situation and what the market was anticipating. The market today is now not as confident or certain about (a) the fact that will we get a rate cut in April or (b) the quantum of rate cuts that could take place in 2012. Morgan Stanley as a house estimates that we could get 100 basis points cut over 2012 but the fact is that today the conviction behind that call could come into question.

• So I think the bond market is reflecting that uncertainty. Because of what is happening on bond yields, what has happened is that the rally that we are seeing in the banking stocks and the banking sector, to me could get timid and you could see the upside getting delayed to maybe the second half of this year when we have a little more clarity.

• All said and done, relatively because of the bond yield situation, the PSU banks will typically underperform the private sector banks. As a house view also we think that - private sector banks is where you want to be. No doubt one has to be a little vigilant of what bond yields are doing.

• Q: What's your sense of how to approach the infrastructure space because that had a good leg up before the Budget and post the Budget it has all gone very soft there?

• A: It has gone soft purely because there was nothing in it in terms of big ticket moves that we were expecting. It was a little unreasonable to expect such big ticket reforms. No doubt we have seen some sort of a tactical sell-off in these stocks post the Budget but as a sector if you look at it on a YTD basis, ever since the momentum and the liquidity has picked up in this market, this sector's group of stocks have been handsomely outperforming most of its peers.

• There has been banking that's probably beaten infrastructure but the momentum and the sort of the participation continues to remain. Barring that, within infra as a house we are asking people to stay very selective because we do think that a lot of the capex that could would have resulted in some sort of policy reforms or interest rates coming down to us has been delayed to maybe the second half of this calendar year.

• Therefore, that is one expectation of the market which has not been met. It's not like you will see a broad based infrastructure rally. But incrementally, specifically for something like a pocket of infrastructure like power, we have seen some good positive moves by the government even though if it was more from an accounting point of view or whether it was for equipment relief or whether it was import duty removal on coal.

• But these are incrementally steps in the right direction specifically for that one segment of infrastructure. I also believe that the capital goods segment catering to the power sector will also kind of piggy back on the sort of minor moves and incremental positive steps that are being taken for this sector. In infrastructure, the broad based capex move to us has been delayed. But we still think there are pockets of opportunities that one should pursue within the space.

Source