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Friday, August 28, 2009

Don't be tricked by market optimism, cautions First Global

The risks for the stock market are building up and the markets are still being in an optimistic mode, so one could see a correction ahead, believes Devina Mehra of First Global. “That’s the market’s way of tricking you.”
“It’s a situation when the finance minister comes on the channel and says the drought situation is worrying but the markets continue to go up. It’s a situation where people say global markets may go down so money will be diverted into India and it will do well. Or if global markets fare well, India will anyway do well,” Mehra said in an interview to CNBC-TV18.
Heavyweights like Bharti, Reliance Communication, Reliance Industries and NTPC would weigh on index’s upside, she said, adding that the various risks that the markets faced were the government borrowing and high inflation.
Stocks-wise, Mehra said midcaps were looking good but the midcap may last only for a few more weeks. She was negative on metals and mining stocks. “The commodity boom is over for now. The China buying story is over for now,” she said.
Power stocks were fully valued, Mehra said, and added that there may not be more upside in the sector.
Q: What is your sense, where is the market heading next from where we have reached in the last three months, essentially trapped in a bit of a trading range?
A: The risks are building up; we are still in a very optimistic mode. So we are still in a mode where the Finance Minister comes on the channel and talks about drought and market goes up. So for a while we can keep saying that the drought doesn’t matter, that the global commodity sell-off doesn’t matter, that China coming down doesn’t matter — that is always the market’s way that it will trick you into believing that none of that matters but overtime it builds up and it starts to show.
It is a reverse of what was happening very early in this calendar year where your mind was refusing to accept some of the good numbers that were coming through on cement and later on auto and so on. Right now, we are bit on the other side and it’s not as if it is going to happen tomorrow. But if you look at a week to a month’s perspective, the risks are definitely building up and not just for India, if you look at the emerging market and particularly the Brazil, Russia, India and China (BRIC) set you are going to be impacted.
Right now you are in a mode where if global markets are not doing well, India should do well because the money will come here or if the global markets are doing, well, then India will anyway do well. The mind is set towards taking the positives but those are the risks. If you look at just at our market, particularly the largecaps, there are risks in many of them because most of them never did become that very cheap and from there the index doubled. So right now you will have a lot of heavyweights, which will weigh down on the index in terms of not having a tremendous upside whether it is telecom stocks — Bharti, RComm, RIL, ONGC, NTPC — none of those we see as making huge moves on the upside or for that matter banks, cement space are also tiring out, so those are the risks.
Midcaps would now look slightly better because they were impacted negatively when the market just dried out, particularly for the primary markets and the qualified institutional placement
(QIP) because a lot of them became heavily capital constrained. So the capital coming through has meant positive things on the fundamentals for some of them, so that has been relatively slightly better space.
article by moneycontrol.com