According to Gujral, there would be a good bear market rally, only if there is a correction in inflation numbers, crude falls, or the very factors that are depressing markets right now.
Excerpts from CNBC-TV18's exclusive interview with Ashwani Gujral:
Q: How would you read what has happened over the past five-days?
A: The market is now pausing before the next move. The decline has been pretty swift and we should now be moving within a range of 3,850 to about 4,100.
Slowly, this volatility will come down and the market will build strength towards the next move. In a bear market, prices generally go down. So, we should be looking at levels of broadly 10,000 on the Sensex and 3,000 on the Nifty in the months to come.
People should not look at any sort of sharp rally to mean that things have reversed. They will be formed if the prices become too low to sell and it will be a 5-7 month period when all these macro factors start turning around and then the final bottom will be formed. It will not be a day’s affair, where you go up 700 and the final bottom is there.
Q: For the near-term though, can you see a bear market rally coming? A few months back we were almost at a 20% Nifty bear market rally. Do you think its possible that a rally of such magnitude could pan out, even if the eventual lows come about later?
A: A good bear market rally would only come if there were some sort of correction in the inflation numbers or crude or very factors which are depressing the market right now. There will probably be a 100-150 point rallies in the Nifty, probably a ranging move could also qualify as an upward correction. But this would only be due to short covering.
But till you have a serious correction in the commodity prices, there will not be an upside. The first time the pullback rally happened, everybody was optimistic that at 4,400 the bottom had been created and we would probably go back to new highs. But this time, people are a lot more sceptical. Fresh money has been scared away and buyers really are not coming forward. So, this market would have to have some macro factors changing to have a sustainable 20% kind of rally.
Q: 3,850 has emerged some kind of support for the market through this week. Would you watch that level? Do you think these supports are meaningless and with every rally you are looking to open up a short?
A: Supports clearly are meaningless because the nature of a bear market means fresh lows will get formed. So, probably it will be another 100 points on the Nifty. Again, 4,100 acts as a resistance and we start moving lower because nothing really has changed on the very factors which were depressing this market.
So, 3,850 sooner or later will break and you will see fresh lows because all bear markets right from 1992 have given back 55-60% of the overall market value.
So all of these bottoms though they seem quite low from the highs, are really a progression of higher bottoms. This cyclical bear market will take 12-18 months to play out.
Q: What do you see on the charts of some of the stocks that are pulling back - capital goods and infrastructure kinds of plays?
A: These are all pullback rallies. The capital goods sector has lost its fizz. All these sectors that were overowned - capital goods and real estate are all inflation hit. For BHEL, Rs 1,340 seems to have emerged as some kind of a support. At higher levels, Rs 1,550 becomes a resistance.
Probably even the strongest stocks are breaking down supports. We had Rs 2,600 acting as a strong support on Larsen. That finally broke down. Now, you have Rs 2,120 acting as some sort of support. Probably, there may be a sideways kind of pullback for the next week or 10 days and we should resume our decline.
Q: What is happening with the metal stocks?
A: Metals and metal stocks are two different things. The market is looking for spaces that have not fallen. So, you will start looking at hits in areas that have been relatively stronger. Metals was one space that was holding out because of global commodity prices. So, there may be some more shorting. The space to go down in metals is probably more than a real estate or a capital goods type of stock.