Mkts may edge higher in Feb; RIL to outperform

Courtesy : Sandeep Bharadwaj, Chief Executive Officer

Head Equity Strategy, Tower Capital,

Moneycontrol.com

In an exclusive interview with CNBC-TV18, Sandeep Bharadwaj, Chief Executive Officer and Head Equity Strategy, Tower Capital, speaks about his reading of the market and his outlook.

Here is a verbatim transcript of the exclusive interview with Sandeep Bharadwaj on CNBC-TV18. Also watch the accompanying video.

Q: Where do you see the market going in the next quarter? You have a lot of impulses coming in—the budget, the results, the Credit Policy. Would you say this is the buy time and by March 31 we are going to see higher highs?

A: I think the biggest overhang the markets will be seeing is disinvestment coming from the numbers. We had the inflation numbers that are way ahead of the RBI’s expectation, so there will be a big constraint on the RBI to go for interest rate hike. But in my opinion RBI will be sensitive to the governments’ disinvestment programme. For the present credit policy, you may see a 25-50 basis increase in CRR, but I think most of it is priced into the markets, I don’t see a hike in the reverse-repo rate yet. I think that will happen in the next credit policy.

The markets will continue to edge higher; it will be a slow and sluggish movement what we have seen in the last two months. I think the same pattern will pan out and NTPC and REC disinvestment will be a success. But going into March, I will be a bit cautious. But February, I am a bit confident about markets edging higher and March, I will start to get cautious because inflation, locally and numbers from aboard will be a big concern because the US economy is not showing any signs of improvement. But we still continue to head higher, the S&P numbers in my opinion will be 1200-1220 about 7-8% from these levels, Nifty about 5,550, these are the levels that we are looking at.

Q: Do you think liquidity is the overriding theme here and its basically going to smother everything else in the next 3-4 months because everybody is just trying to get in right now?

A: I agree with you. I have always talked about the power of liquidity and how we should always respect that. But if you see the forces that came into play way back in September-October 2008, we saw the liquidity tap being opened and the mother of all liquidity being pumped into global markets; it was a concerted effort by all the Central Banks. We saw the effect of this liquidity coming in from March 2009, so effectively about 13-14 months have already elapsed since the liquidity was pumped in. I think going into March, it will be 12 months since the effect of liquidity we have seen.

But as we growth into the future, the thing is the incremental impact of liquidity will start to taper off because the base gets bigger. And we draw this analogy with what happened in Japan in the late 1980’s and early 1990’s and that is why the increase of equity stock markets growth globally is slowing down. So we will reach a point no matter how much liquidity you pump in, it will cease to have an impact, so we are heading in that direction.

Q: So what are your out performers?

A: Reliance, since the election results, Nifty has moved up 16% and Reliance is down by 10%, now that is an under performance by 26% by a market leader. I have been in this market since 1992-93; I have never seen this kind of behaviour over an extended period of time that is 8 months. So I think the biggest trade for the next month or so, short-term trade, intermediate trade is Reliance because I think it will play a catch up game and rest of the stocks in the Nifty names will under perform.

Looking at inflation numbers, we will be a bit wary of the interest rate sensitive sectors and so we have already asked our clients to lighten up on those names.