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Nifty remains in a range; individual stock correction may continue: Udayan Mukherjee

We had almost 20 percent rally this year. A couple of 100 points on the Nifty should not be enough to rattle the market, said Udayan Mukherjee in an interview to CNBC-TV18.

July 03, 2017 / 11:06 AM IST

We had almost 20 percent rally this year. A couple of 100 points on the Nifty should not be enough to rattle the market, said Udayan Mukherjee in an interview to CNBC-TV18.

Below is the verbatim transcript of the interview:

Anuj: The market had a bit of a scare last week, the biggest correction point wise. Do you get a sense that the bulls have weathered a storm or maybe the first real correction is coming?

A: I wouldn't call it a scare. We had almost 20 percent rally this year. A couple of 100 points on the Nifty should not be enough to rattle the market at all but the fact that you call it a scare is a comment on how resilient market have been and how complacent traders might have become because of the absence of correction for the last five-six months. So I do not think we have seen any major correction at all yet. It is true that the Nifty is finding some kind of resistance around higher levels of 9,600-9,700, every time it goes there it retraces a bit but what is happening right now is instead of a major correction in the index we are seeing a lot of corrections happening at an individual stock level. The Nifty is simply consolidating in 9,400-9,700 kind of range, at lower levels you see buying coming in, at higher levels there is resistance. So the Nifty is not doing too much but you see a whole host of stocks where valuations actually expanded very significantly, they have corrected 10-15 percent while the market not corrected more than 2-2.5 percent, actually you might see more of the same where the Nifty remains in a range because of the support of liquidity while you might see individual stock corrections continuing.

It is only as we get deeper into the implementation of goods and services tax (GST) and if the market gets a sense that this is not a temporary aberration and earnings need to be marked down very significantly and that comes on the back of any other risk like some border tension with China flaring up or a global risk off event then the Nifty could have a more meaningful correction maybe even down to those 9,000 kind of levels. We haven't seen signs of that immediately or right yet but it is certainly a possibility, if conditions get worse from here.

Surabhi: Let me take up one of the factors that you mentioned there. That is goods and services tax (GST). It is only now that we are beginning to see companies come up with final pricing adjustments. The auto guys are cutting, the expectation is that something like ITC might also cut, the white goods makers are hiking prices, so what is the understanding? Q1 and Q2, negative, positive, how should we read this?

A: My sense is from a company level, they are doing what they need to do. I don’t think there is any major confusion from the listed stock universe level or not too much at any rate. I think the suppliers to the organised system, there exists a lot of confusion so it will be very difficult to pinpoint how exactly this GST implementation will play out. What the market seems to have factored in is a couple of quarters of a middling level of disruption or confusion.

If it is only that, maybe three-four months of disruption, then I think the market does not correct too much because of GST per se. If we get the feeling during the course of the next couple of months that there is a lot of mayhem in the system, people have not figured out the input credit, a part of it and that is leading to a lot of dislocation then the market might get a little worried that if FY18 earnings picture might need to be marked down significantly from what the expectation was even one quarter back. If and only if that happens, would the Nifty react in a meaningful way on the way down otherwise, it will probably wait and watch and consolidate, get into a range and wait for the GST disruption to get over, get a clearer sense of the earnings picture and then move ahead along the direction that it is moving which is on the way up. So, I think it is unknown right now and best to wait and watch for three months before passing judgement.

For entire interview, watch accompanying video.

first published: Jul 3, 2017 11:06 am

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