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Markets unlikely to rally until overall economic situation changes dramatically: Gautam Trivedi, Religare Capital Markets

ET Now Aug 26, 2013, 11.27AM IST
("The Nifty is going to trend…)

In an interview with ET Now, Gautam Trivedi, MD & Head of Equities-India, Religare Capital Markets, speaks about the market and some sectors. Excerpts:

ET Now: The rupee is up nearly 2% from the recent low and the Nifty is up about 200 points from the recent low. What is your sense? The storm has come and gone or what we saw in the second half of last week was just a dead cat bounce?

Gautam Trivedi: This is a dead cat bounce. I would be cautious. Do not forget that on Friday after everybody went home, the RBI bought dollars. One has to be very careful about how the rupee did after 4:30 pm on Friday. This week, between now and the expiry, you will see the market firm up and have a mild rally, but overall fundamentals in the economy really have not changed between the last week and this week.

ET Now: The Nifty range has got reset in the last 8-10 days. What could be the Nifty range for the next six months?

Gautam Trivedi: The Nifty is going to trend down another 5% to 8% from these levels because the weakness in the underlying economy persists. We have not seen any major green shoot as yet. Year to date, the overall performance of stocks barring the top five or six stocks has been pathetic. In the Nifty 50 there are only about 11 stocks that are positive. In the BSE 500, 84 stocks are in the positive territory and the rest all are in the negative territory. So, the overall economic situation has not dramatically changed as yet and until we not see any evidence for that, I do not think the markets are going to rally.

ET Now: What is the need of the hour right in terms of either RBI action or from the government's end which could somehow at least provide some solace to market participants?

Gautam Trivedi: The number one focal point right now is the stability of the rupee. If the rupee does not stabilise and the volatility in the rupee continues more towards downside both the domestic as well as the foreign investors will not participate in the market.

ET Now: Some people would argue that there is a lot of pain in the system. Banks have fallen below their book, consumer names have corrected by good 15-20%, metals stocks are also beaten down. So how does one figure out that all the bad news is still in the price or it is already in the price?

Gautam Trivedi: That is a fair question. Given the velocity with which the banks have fallen, many stocks look extremely compelling. For example, Yes Bank is down almost 53-54% from its peak. One would argue that the stock looks extremely attractive, which we do believe and so do a lot of PSUs. Some of the banking PSB stocks have had 0.3-0.4 times price to book which are near their lifetime lows as well in terms of valuation. But the overall confidence in the banking sector still remains elusive. People want to see evidence of the NPL cycle slowing down and interest rates being brought down. None of that seems to be on the anvil for the time being. So, until we do not see clarity on that, I am not fully confident of recommending banks. Having said that, in the past 10 days or so given the carnage in the banking space we have seen a lot of interest coming back in the private sector banks like Yes Bank, HDFC Bank and HDFC, and to some extent in IndusInd Bank. Among the PSU pack it is probably SBI at best where we have seen interest coming back, but outside of that a lot of investors do not want to touch the banks.


ET Now: What do you like in the metal universe?

Gautam Trivedi: In the metal space the rally has come in the last 10 days. So I would not get too excited. The question we need to ask is given the global rally in commodity prices, will the Indian metal companies have the ability to pass on or increase the prices domestically? I will be very surprised if they can do it in this environment. So, the rally seems to be limited at this point. I would not get too excited of course here. But Tata Steel is a stock which a lot of people like. Also, valuations for the metal companies were extremely attractive. A lot of them were trading lower than books. That has also to some extent been responsible for the rally.

ET Now: What do you think about the likes of L&T and BHEL which have been perking up?

Gautam Trivedi: It is too early to get excited about the capital goods space. Even though we have Cummins India as one of our top picks, there is limited interest at this point within the cap goods space. At least we have not seen much evidence of that.

ET Now: The easy trade because of a fallen rupee is that you should buy exporters which is pharma and IT, but the other end of the spectrum is that you should also now start revisiting some import substitution trade or companies or group of stocks which will benefit where currency will act as an entry barrier now. What is your favourite import substitution trade?

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