Kashyap Pujara, Fund Manager, Enam Direct, said as of now there are no catalysts in the domestic or internationally markets for any immediate upmove. "On one hand we are seeing political uncertainty and on the other we are seeing inflation, and interest rates ultimately taking a toll on expected growth rates. Externally, we are seeing oil. When interest rates go up, it has an inverse relationship with the price earning multiples. So, one is seeing PE multiples actually shrinking."
Sandy Jadeja, Chief Market Strategist and Head of Global Training, ODL Securities, said globally all markets are reaching critical support levels. "But they are doing it altogether, so we might start seeing some sort of rebound in the early part of next week or possibly even the week after as we continue to see weakness."
Excerpts from CNBC-TV18’s exclusive interview with Kashyap Pujara and Sandy Jadeja:
Q: Does it look like some of the old supports are getting violated and we will probably sink to even lower levels from here?
Pujara: The markets are caught in the crossfire between oil prices and the resultant high inflation. There is also political uncertainty. So as things stand today, you might see some more pain left in terms of the time the markets might take to consolidate and move out of this uncertain zone. As of now, there are no catalysts be it in the domestic markets or the international markets for any immediate upmove.
Q: What is your perspective from the global porch because it is not been just an India specific sell-off today? The global markets have sold off. Are you getting the sense that another leg of this bear market has started on the way down?
Jadeja: We were looking at fairly steep declines over the next few weeks. Certainly, the support levels that we expected on the Dow Jones and FTSE have been reached. Not only have they been reached, they have now been broken through too, which is showing that there is still further weakness to come on the Dow.
Previously I saw 11,225 as a critical support level. The market did hold there for a period of four days, which has now broken through and the next downside support is 10,700 or even 10,600. That is only about 2% away from the current levels.
In the European markets, there have been some fairly sharp declines. The markets are down by about 2% and the FTSE is at 5,000. So for a few days or next week or so all the markets globally will be reaching very critical support levels. But they are doing it altogether. So, we might start seeing some sort of a rebound in the early part of next week or possibly even the week after as we continue to see weakness.
Q: What is weighing the heaviest on the sentiment at this point in time? Is it the technicals of the market? Is it political uncertainty or just the bad global cues that we face everyday?
Pujara: It is clearly the global cues. The most important factor externally that is weighing on the market is clearly oil. The import intensity is pressurising the current account deficits and propelling inflation further up. So, we are definitely in a situation where the foreigners are taking a serious look at the kind of subsidy burden that is mounting day-on-day. As things stand now today, apart from oil, internally, we have issues related to an actual slowdown.
From the way interest rates are shooting up, a lot of corporates would definitely have interest costs going up. The market is sensing that there might be some slowdown as far as growth is concerned.
On the one hand, there is political uncertainty and on other hand, there is inflation and interest rates ultimately taking a toll on the expected growth rates. Externally, oil prices are soaring. One has to remember that when interest rates go up typically it has an inverse relationship with the price earning multiples. So, PE multiples actually shrink.
Q: We are down to 3,860 on the Nifty. What kind of levels can you play for now on the Nifty?
Jadeja: A lot of investors are looking at these markets and are trying to catch a falling knife. In other words, they are going to get hurt if they try to pick the bottom in this market.
You can quite easily see 2,700 as a key level. These are broad technical numbers that we have seen in foreign markets previously. So, there are quite a few percentages that could be knocked off the local markets. The Nifty could touch 2,700 and possibly go back to 2,500 levels.
It is not going to happen in just one go. There probably will be a slowdown in the decline coming up over the next week or two, in collaboration with the world stock indices as well. The Bombay Stock Exchange is really looking on a broader market. The five-way pattern suggests that we might start seeing some form of a bottom coming up in the next couple of weeks or so.
But then, rallies are only going to be anything between 5-12%. So, even within these moves, there are still good opportunities to capture some profits. But I would wait until we start seeing technical patterns such as a turn in the momentum indicator, such as the RSI, when the market starts closing above Wednesday’s moving average.
But more importantly, when the market breaks above the previous week’s high, it is an early indication that we might see some sort of a market turn.
Q: What have been singled out for punishment are those same sectors - banks, capital goods, and real estate. Do you see even lower levels for some of these stocks?
Pujara: In hindsight, if you look at the way banks are priced as of now, the entire banking space is more or less below 0.8 times to 1 time the price to the adjusted book value. Most of these banks would typically have an RoE of 15-20%.
So, when you buy stocks under book you are actually getting a better RoE of close to 25%. If you are looking at a bottom-up kind of scenario, banks are trading at pretty attractive valuations.
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