See market heading upwards in H2 CY09: Kotak Mahindra Bank

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Published on Wed, Oct 22, 2008 at 20:30 , Updated at Wed, Oct 22, 2008 at 20:54
Source : CNBC-TV18

C Jayaram of Kotak Mahindra Bank feels the markets do not have legs to go much higher. “It is difficult to call a bottom for this market. It seems like the markets are close to it. By the time you start to look at a movement upwards, one is probably looking at the second half of 2009.

According to him, FIIs shorting is not a major issue but fundamentals are a concern. “Huge FII selling and high volatility are the immediate triggers.”

Jayaram said the BFSI space in the technology sector is the key worry and there is a need to see how US market fares. There is a consensus that the worst may get over by first quarter of 2009.

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

Q: What’s your sense, yesterday it looked like the market could have a relief rally but today all hopes seem to have bashed again?

A: It shows that the market doesn’t have legs to take it so far beyond any level. People would be happy if it could have got the 11,000 but its clear that the market doesn’t have legs, and unless you actually get a broad feeling that things have settled down in the global environment, I cant see this changing very quickly because even now all the volatility indexes are trading at all time highs. That’s a good indicator of how much panic is there in the system and unless if those seem to be improving I can’t predict whether we can see any stability at this point in time.

Q: Yesterday there was some hope because of SEBI’s directive to the brokers that there could be a bit of short covering which might lift stock prices in the near term but that didn’t help out that much today?

A: Yes even assuming that there has been more explicit instructions from SEBI etc, to my mind that would just be a temporary pullback, about 500 points, it’s really at the margin. Don’t address the fundamental issues which it’s not really because of some heavy shorting by FIIs, clearly there are people like hedge funds who have to unravel and sell a lot of their stocks and take the money home. So until that sort of selling is out of the way, you are going to see these moves.

Q: What’s the biggest problem, is it just a technical problem of oversupply of stocks from FIIs right now or is the market suffering from poor sentiment or lack of buyers or fear of an earnings recession? What do you think is the key problem which is preventing it even from striking down a pullback even from the beaten down lows?

A: There are bunch of reasons but the primary one is selling by many of the hedge funds etc which have to redeem and get out but underlying that there are more fundamental issues which has to be resolved. One clearly is that there is now starting to be a fairly strong belief that the Indian economy itself is slowing down significantly. While there have been some earnings downgrades and the broad consensus now seems to be that instead of a 1000, we are looking at 950 etc but there is an increasing belief that even at those levels people are not willing to strike out more bold and actually earnings could come off much more significantly as compared to that. So those are more fundamental issues which worry people who look at getting in the markets at a particular point of time, the immediate trigger is the FII selling and a lack of conviction that there is a firm bottom.

Q: What’s the kind of range you would then expect? Do you think the markets would get away from this 10,000 levels or could we be staring at even deeper lows?

A: I would say that it’s pretty close to the 10,000 levels now and having said that if on a particular day when the global sentiments is bad and a large number of hedge funds come and sell simultaneously, you could see levels which are lower but it’s very difficult to call those but around these levels you are really looking at pretty close to the bottom.

Q: What is your take on technology as a sector now? You have pretty much heard from most of the big boys. Are you convinced or sceptical?

A: The way I would look at technology is not worry too much about Q2, Q3 et cetera. But I would really try and figure out what could happen a year or year and a half down the line. That is where the problem is given that the BFSI vertical is anywhere between 35-40% across the board. With the collapse of the entire space in the western world, I cannot see too much fresh business coming out of there for quite some time.

One doesn’t really have a good handle at this point as to when that is likely to revive if at all. So, if that has to be factored-in to the entire technology space, I don’t think it looks very pretty right now.

Q: What do you make of the companies from the commodities space et cetera that undertook large acquisitions last year, and now that the cycle has turned could be getting into some kind of trouble as Moody’s indicated with its downgrade of Tata Steel? Do you think these companies need to correct further downwards because of the leverage on their balance sheet?

A: Obviously we have to look at each one on an individual basis. But at a broader level, it is probably not the greatest thing to have happened to them that you actually went and made acquisitions if not at the top of the cycle at least pretty high up in the cycle, and after that the cycle has corrected. And their ability to actually service some of that debt at reasonable levels of interest has also come under pressure. So, I think there is pressure clearly on some of those companies that have undertaken acquisitions earlier.

Q: What is your own sense of how long this bear market could turn out to be? There are various estimates doing the rounds. What is yours of how long we have got to muddle through this pain?

A: My own sense is that there are probably two levels at which this will work. The first level is where the market broadly settles down at a floor level and if there is consensus that by and large this is about the worst that can happen. To my mind that is likely to – in the Indian markets at least hopefully – happen probably in the first quarter of 2009. But before we actually start getting into an uptrend, I think there is a further period of waiting at a certain level where you need to stabilise. By the time you start to look at a movement upwards, you are probably looking at the second half of 2009.


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