Mkts to trend upward amid intense volatility: Amas Bank

KC Reddy, Head Asset Management, Amas Bank, feels the chances of January being a pleasant surprise remains quite high. "There is lots of cash with several investors overseas which will start trickling in from January." Volatility, he said, is lower as compared to last year, but it is still at very high levels.

Reddy said that the chances of market actually going up in early part of January with money coming in, and subsequently, catching up with some of the fundamental and growth concerns still being there. Hence, the market could trade up and then trade down.

Here is a verbatim transcript of the exclusive interview with KC Reddy on CNBC-TV18. Also watch the accompanying video.

Q: What is the sense you are getting going into January? Do you think it will be a terrible month or a surprisingly strong month?

A: The chances of January being a pleasant surprise remain high. A continuation of December, what one will see is the market filled with a lot of concerns. Volatility is although lower compared to last year, there still is higher levels of volatility. Nevertheless, this run remains positive, there is a lot of cash with several investors overseas which would start trickling in from January.

Q: Is that your sense that we will get a rally first and then a downside and not the other way round, as a lot of people believe, or do you think that we will not get a downside at all? The market has found some kind of a base?

A: In terms of the strict bottom, if one wants to put a level, we have probably formed that bottom somewhere in November looking at various fundamental developments and also the technical picture of the market. So, the chances of market actually going up in early part of January with money coming in, and subsequently, catching up with some of the fundamental and growth concerns still being there. Hence, the market could trade up and then trade down. However, I believe that we are unlikely to test the previous lows anytime soon and the trend is upwards but again with the serious levels of volatility.

Q: How are you reading the Satyam situation?

A: I think there are a lot of moving things in that subject to comment on, but obviously a positive outcome would be some kind of change in the ownership structure or new management being in place. However, we need to see more clarity on what the existing management has to say. They haven’t said much in the last week or so and also if there are any new interested parties either strategic investors taking over a private equity. Thus, this space needs to be watched for the next one–two weeks.

Having said that, I still think that whether with the existing management or not, the valuations are significantly attractive and the company would be of good strategic interest given that the business is fairly low beta in terms of its exposure to the global economy. Hence, it is a fairly good level. One way or the other, the resolution will happen and I would believe that even to some extent, yes, it is pretty unacceptable. However, even with the existing management, valuations are fairly attractive in my opinion.

Q: If you are predicting a rally in January, what do you think would be the most likely leaders of it in terms of clusters or sectors?

A: I would look at sectors which are more downstream at the consumption end. We look at automobiles, banking sector looks attractive. It has performed well but has more room to go. Automobiles, some of the FMCG stocks where valuations are not very expensive, IT especially stock specific stories, some of the health care companies. I think from an investment perspective I would also look at some infrastructure names but again one has to be very comfortable with the valuations unlike some of the larger names. I am reasonably more positive on the global economic and domestic economic story again not going back to the really great days of heady growth. But, I think the economic performance will be better than expected towards the later end part of the year and I would look at select midcaps as well. Other than that, there are trading ideas in metals and energy but not really positive on their medium-term to long-term outlook.

Q: What are your earnings expectations in January? Do you think there will be negative surprises or any bad news that has already factored in the market need to react in January to those earnings when they come?

A: Unless they are extremely disappointing numbers beyond already what the market is factoring, earnings is a non-issue going into the next two quarters because valuations are significantly low. The big factors for the market are macro. What is going to happen to interest rates, would there be more stimulus going around the world and also whether India and rest of the world is reacting to the stimulus which is already in place. I think there are some early signs that we would see that start working. That is what the market is going to watch for because when there is the broad market at such relatively low valuations, near-term earning stops to be an issue.

However, if one starts getting a feeling that the economies are not going to recover anytime soon and there is more downside, then markets start getting worried about earnings for the second half of next year and 2010. That is where earnings would start becoming an issue again but not the near-term issue. So, I don’t think Q1 January numbers are important, unless again, one has mentioned stocks like Bharti where the valuations are still high and stocks are not declining much. So, earnings will be important but for most of the markets I would look at macro situation rather than earnings.