In an interview to CNBC-TV18's Sonia Shenoy and Anuj Singhal, Vibhav Kapoor of IL&FS and CK Narayan, Growth Avenues spoke about the market and their outlook for next week's trade.
Below is a verbatim transcript of their interview
Sonia: If this is still a bull market and it is just a minor correction in an otherwise uptrending market is this a good time for retail investors to be buying into certain stocks that have corrected 10-15 percent last week?
Kapoor: We are not surprised that we are having a correction now. We had always thought that the market was due for a correction and it was difficult to say whether it would happen a little before the Budget or after the Budget but definitely after the Budget and that is starting to play out.
One must realise that even in the best of bull markets you get substantially long periods of significant intermediate corrections in between. We had one rise from about 5900 to 7800, something like 35-40 percent. Therefore, technically or fundamentally or valuation-wise, a correction was very much imminent and that is beginning to play out.
Also of-late we have been seeing a lot of build-up in retail single-stock future positions, which had gone up to about Rs 6000-7000 crore or more than that which is always a sign that the stocks are passing into weaker hands and it will play out as 'buy on rumour, sell on news' type of thing. Therefore, although the Budget was well-received, and it was reasonably good Budget, you are seeing profit-booking happen now.
Sonia: Since you say that the Budget was well-received, I just wanted to ask you on two issues: retrospective tax and GAAR. There is still nothing that has come through, which the markets like. Do you think that is the reason why the market was disappointed even on Friday or is it just routine profit-taking as you said?
Kapoor: The market always finds excuses for corrections when they have gone up so much. Today it is GAAR or retrospective taxation; it could have been some other issue if this was not there. The simple fact is that markets had gone up too much too fast. Lot of the positives, immediate positives at least had been priced into the market and it was just due for a correction.
Anuj: What is your call? Would you agree with the view from Vibhav that it was an overdue correction and would you be looking forward to buy this correction?
Narayan: Absolutely. There aren't any two views that the market had indeed run much ahead of itself. All traders play this brinkman game where they know they are in dangerous territories but then that is the name of the game, right? They just keep playing it till it ends. That is exactly what has happened and whether you attribute it to the Railway Budget or annual Budget which is not really true because those were just incidental events.
The real problem is that we had reached some 7-year highs in terms of the stock future positions just prior to these two events. Since much of it had already got priced in and there was nothing earth shaking in both those sets of documents I think the market was hit with a wave of profit taking.
It began as profit-taking but then overleveraged positions were to such an order that the wave just kept on unfolding Tuesday through Friday and as more and more damage got inflicted on to prices various stoploss levels either set by people voluntarily or enforced upon them by their brokers etc. I think this was entirely a domino set off by overleveraged positions.
People with Rs 1000 in their pockets were actually trading stocks worth about a lakh or ten lakh. Probably until we see that out of the way this is not really over.
Anuj: What would be the pockets where you would be looking to buy now after the kind of correction that we have seen?
Kapoor: I don't think we have seen the end of this correction. The uptrend lasted for weeks and months and we have just had 3-4 days of correction and not even 10 percent of the rise. Normally when these type of corrections start they last much longer.
Even at current levels prices are not really cheap for you to be enticed into buying immediately. So, I would think this correction is going to last may be a few weeks at least. It doesn't mean it will go down one way but it will be up and down but the trend should be down.
If you look on a valuation basis probably the good buying points would be somewhere between 7000 and 7200 on the Nifty and then you would have to look at individual stocks and sectors. Some of your stocks may reach those attractive levels earlier, some may reach later on. So, you need to look at valuations of sectors and you need to look at valuations of stocks and then decide when to buy. I don't think you have to be in a tearing hurry to buy just because the market has gone down 200-300 points.
Sonia: The one positive that came through this week was the Infosys numbers. After a long tine we have seen outperformance as far as margins etc are concerned although revenues were a bit disappointing. Do you see a case being built for Infosys to get rerated and would you advice buying it?
Kapoor: I think so, I think one thing which can happen now while this correction is going on is that some money could shift to defensive sectors. We saw that today, we saw some of the pharma stocks going up, Dr Reddy 's and some others. We saw some of the tech stocks going up partly because of good Infosys results and partly because this money shift is going to happen because these are now sectors which are not heavily bought into, there is a low exposure in them.
Infosys by itself came out with decent results better than expected margins although the topline was a little lower than expected. A lot is going to depend on what the market sees as the new CEO and what growth he can bring into the company. So, you are going to wait for 2-3 quarters and look at what is happening in the company. Overall, it is not expensive. It is one of the least expensive stocks in the market amongst the large caps. Given that the overall prospects for the software sector look pretty good, it is a good stock to buy as you go along over the next 2-3 months.
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