Talking to ET Now, Sanjeev Zarbade , Vice President-PCG Research, Kotak Securities , says would be more positive on large-cap companies. He finds midcap spacy quite frothy.
Edited excerpts:
The overall markets are coming under quite a bit of pressure. There is mild support from the likes of Axis, Reliance Industries and Kotak Bank but it is the PSU banks that are the worst hit right now, as well as some of the other sectors. What could be the next potential trigger for the market? Is there anything positive on the anvil?
We have seen the market losing momentum especially after the Budget and the FII flow as well as the domestic institutional and retail flow has been slowing down for January and February. In addition to this, we have seen that there is volatility which has increased globally as well as in India and considering all these factors and the fact that the valuations are also on a high especially in the midcap segment, we tend to have a bit of downward bias for the market.
We would be more positive on the large-cap companies. However, on the midcaps, clearly we believe that there is a bit of froth happening. However, the midcap segment is quite large and we believe we could still find some good midcap ideas with potential upside in the coming days.
For the market, we believe there could be some downward bias. It all depends upon how the macroeconomic factors pan out. If the Brent crude prices start correcting, that would be a positive for the Indian markets and would improve the sentiment and if the earnings growth starts looking up from the first quarter, that would be another factor.
I believe in the near term we should look at the macroeconomic factor, the Brent crude and the government borrowing programme. If those factors start looking better, the markets will stabilise and the next phase of rally can continue.
The other talking point today has been the NCLT exposure, the fact that Tata Steel is now bidding for Bhushan Steel. They are the highest bidder and given the kind of debt pile that Bhushan has on its books, that is turning out to be a little problematic and Tata Steel is willing to pay the 15-25% premium. We do not know what or how much but they are willing to pay that premium in this current cycle. Typically you see these acquisitions not at the peak of the cycle or almost at the peak of the cycle like right now, but at the bottom end?
I would not be at liberty to comment on Tata Steel because of various mandates that we have. However, from a holistic perspective, we look at the entire deal as a positive because the NCLT formation is looked at as positive in terms of resolution of the entire public sector banks NPA crisis and this is the first instance where the bidder has come. It is a positive for the public sector banks but at this point of time it is very difficult to comment on how it would look for Bhushan Steel and also for Tata Steel.
What you are expecting in terms of the liquidity situation for the equity markets? What is the sense that you garner as to what may happen with FII flows as we progress into the fag end of February, going into March?
We believe the FIIs would take into account the macroeconomic situation in India because the Indian economy is pretty sensitive to crude oil prices. So, that is one thing. Apart from that, the kind of issues like the PNB fraud is not something which the FIIs would take quite positively. We believe that given the valuations and the fact that the global yields are going up, the FIIs would be choosy. They would not completely write off the Indian market but they would come at lower price points. We have already seen that the FII cash has been negative in February. We believe that at lower points, definitely the FIIs would start to buy out good Indian stocks.
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