CORPORATE PRESS RELEASES (INDIA) news desk, June 26,2012
Vineet Bhatnagar, Managing Director at MF Global, talks to ET Now about the outlook for the stock market and the rupee.
ET Now: What do you want to start with — global politics, local politics, monsoon or yesterday’s policy disappointment?
Vineet Bhatnagar: All of them, because the Nifty has been hovering around a very tight range of 5,070 to 5,190-95 over the last eight trading sessions. That being the case, everybody is becoming increasingly anxious about the direction. We were looking at a possible breakout of 5,190 yesterday on account of the immediate expectations on the markets from the policy announcements which came as a disappointment. The markets shed all the gains they made over the trading day yesterday.
ET Now: So does it seem like Indian markets’ performance is increasingly only going to depend on government policy action?
Vineet Bhatnagar: Yes, as against creating a very confusing analysis for ourselves. Barring any major global macro event, which of course would rub off on all economies alike, investors – foreign investors as well as local high net worth individuals – are clearly looking at some direction as far as local policy making is concerned. And that is the key that everybody is looking at.
Of course, everyone wants to pull in everything at the same time – whether it is the rupee deficit or Europe – but if there is a way in which we could communicate clarity in terms of where policy making is headed over the next 6-12 months, there should be cheer on the Street.
For example, the buildup in the Nifty open interest for Nifty futures and options over the last two trading sessions is very heartening. FIIs in particular have doubled their open interest as we move into the July expiry. Likewise, the roles that we have seen up till now are above average, so the market is happy to increase the book size and take it to the next month. Underlying cash market purchase is also a net plus — though only Rs 500 crore for institutions — but they do have the appetite to bring in more funds if there is some clarity.
ET Now: So are you advising your clients that it is time to roll over your position or that it is time to cut positions?
Vineet Bhatnagar: No, we are advising they should roll over their positions. There has been some amount of short buildup. For example, FIIs increased their open interest to Nifty Futures by about 120 per cent – almost double – but the rupee amount is just about Rs 2,400 crore. This means there is some short-term scalping or trading going on because the market has been behaving or moving in a very tight range of 5,090-5,190. As a result, people take long positions and quickly get out of them and take short positions and then of course book a small profit or loss.
ET Now: Let us look at specific pockets of outperformance. What is driving cement stocks?
Vineet Bhatnagar: Cement has been one of the sectors looking like a mixed bag. Notwithstanding the decline we were witnessing last year, in the September-December quarter, some frontline cement stocks were actually showing strength and I guess the price elasticity that we were expecting on account of demand disappearing given an economic slowdown was actually not visible.
So, realisations continue to be strong and that kept earnings and stock market performance intact for some of them. However, there is an added element of, shall I say, optimism, at the risk of being contrarian, that if the economy was really to bottom out in the next three to six months, the outlook for cement is actually quite positive.
ET Now: What are you picking up in JP Associates because that stock also has been a market outperformer of late?
Vineet Bhatnagar: Yes, there has been some good momentum in the names you just pointed out – JP Associates being one of them – and you could also actually correlate the F&O volumes at some of these counters and the underlying delivery-related volumes that are visible. So it is clearly an indication of the strength at the counter as far as names like HDIL are concerned. HDIL, JP Associates are stocks showing strength.
ET Now: What about banks? What trends are you picking up there?
Vineet Bhatnagar: Banks have started mirroring the overall benchmark-related movements so closely that it has become a heartache in terms of the type of trading positions that people end up taking. Generally speaking, we are long on frontline banks as against prescribing short-term trading strategies on them. If one were to really look at short-term trading, one could actually focus only on the Bank Nifty as the instrument, but the underlying portfolio should continue to remain long on frontline names like SBI, ICICI, HDFC Bank, Axis Bank. Even names like Andhra and PNB have shown some strength.