The Hindu Business Line : `Market now vulnerable, may touch new highs in July, August'

Dr C.K. Narayan of ICICI Securities gives his perspective on where the markets are headed. He believes that Nifty could hit 3400-3450 levels in the short-term. In his view, there is a danger of a medium-term downtrend.

According to him, markets are likely to be range-bound in the next two months. He further adds that Nifty is seen in the range of 3450-3840 in the next two months. He also mentions that the markets may touch new highs between July and August.

Excerpts from CNBC-TV18's exclusive interview with Mr Narayan:

How have you read the kind of pressure that the market has seen and where do you see us heading in the short to medium-term?

The market has been down since February 9, and has been so for about five weeks now. Normally we would look for short-term trend to last anywhere between one to three weeks. So having stressed out across five to six weeks now, this is actually spilling out into the medium-term territory, which is not really good news.

There is leadership on the decline; most of the sectors have been outperforming the index on the downside. The index has shaved off about 16 per cent from the high and virtually every index, barring the oil and gas index and maybe perhaps pharma,has seen losses in excess of 18 per cent.

So we have leadership on the downside and that is not good news. So in the short-term, we are certainly down and there is now a danger of the medium-term also slipping down.

Where could this market be headed? Some people have been saying that we may get away with this 12,000-12,300 kind of band. The more bearish seem to believe that we could see closer to 11,000 levels. Are those possible according to you technically?

They are certainly on the cards, if we were to see some more of volume-led declines now and if there were to be any kind of event, which would be of a bearish import. The market right now is very vulnerable to any kind of inputs and we become more and more sensitive to the global cues and there are many global cues as we move ahead.

We have the Bank of Japan meet on Tuesday, we have the Fed meet on Wednesday and there are a whole lot of noises being made in the domestic circuit about a possible increase in the interest rate in India itself. So all these are not really making for any positive kind of situation or in any remote way a bullish kind of environment, which could make people actually come to the fore to buy; so we are actually in a situation where we could move down to somewhere around 3400-3450 levels on the Nifty, which would probably correspond to something like 11,400-11,500 on the Sensex. Yes that is a distinct possibility.

What is the situation that can be mapped out for the medium-term then? Will it be a range-bound market that will bandy about in this range and may be a bit higher at 12,400 or so? Do you think any deep crack can take us a lot lower?

No, I don't believe we are due for a deep crack; we have moved down about 600-700 points on the Nifty as it were. So if you speak logically and if you think rationally, it may be time for a reaction but for a reaction on the upside you would actually need to see some kind of shorts squaring up for it to emerge or for some fresh buying to emerge.

Now the tricky thing of this whole decline has been that it has been completely devoid of shorts from the retail side. The retail, quite fortunately, has not been a victim of this whole decline, which is why you are not seeing any kind of rallies at all.

What is really happening is that the hedge parameters for the larger portfolio holders are being triggered at various levels and what we are getting is a very consistent selling on the Nifty futures more by way of hedge than really by way of shorting. So I would think that across the next two months, may be March across till the end of April, we might remain in a range, which could be borrowed by about 3400-3450 on the downside and at best something like 3850 on the upside. So I think we are headed for a range for about two months but the range is fairly wide.

For the bullish traders they would of course set their eyes on the market getting somewhere close to the highs from which it has slipped. Do you think it will be a long time before we re-visit those highs again this year?

I do have a high for the market for this year - sometime spaced around July to August, so I think that would be the best area in terms of the time of the year that the bulls could be in for. Now whether this could take us back to 4200 or a new high at any level higher than what we have seen; that is a call I would rather take once this slide on the downside is over but then I would watch for the bulls this should hold out now, because they have a possibility of at least selling out their goods at a much better price sometime around July-August of this year.

The point you made about leadership on downside - what would support the market on the upside?

It would probably be the same thing. First and foremost, one would want the index to come up a little and try and stabilise more like something about 13,300 levels for the Sensex and somewhere most certainly above the 3750-3780 levels on the Nifty.

Those are the minimum levels that I am talking about. You need the index first and foremost to show a lot of strength and second, we would need to have maybe banks, IT, something like that to really take the mantle and run ahead of the market.

So unless you see both of these happening, the index moving up to levels which would trigger positive sentiments and then for that particular sentiment to be refurbished by some set of major sectors, I think going upside might be slightly difficult. Until that happens, I wouldn't really bet on the upside with major amounts of money.

What about the mid-caps? What sense are you getting there?

Mid-caps need the support of good large caps or at least a steady market, which is why you are seeing in the absence of the former, the mid-cap and the small cap index have actually lost close to about 20-22 per cent against something like 16 per cent of the Sensex.

So unless we have the larger caps steadying out a bit, the scenario in the mid and small caps might be difficult. The best hope would be that we have some very sterling performances for March ending, which would, of course, take some time. So we are not looking at any major scenario till about at least mid April or end April even with mid-caps and small caps.

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