Equities are likely to open on a firm note after BJP’s strong showing in Haryana and Maharashtra, and the oil & gas sector measures announced Saturday, feel experts. However, gains could be tempered by an uncertain global environment and BJP’s inability to get a clear majority in Maharashtra even as it emerged as the single largest party in the state.
Ajay Srivastava of Dimensions Consulting feels any strength in the market tomorrow will be sold into.
“There will be some disappointment in the way Maharashtra (results) have turned out,” Srivastava said in an interview to CNBC-TV18’s Latha Venkatesh and Ekta Batra.
“Yes, there is a positive in terms of deregulation (of diesel); you will see a bump up in oil marketing companies. But I don’t think the euphoria will last for long,” he said.
Srivastava feels the market on the whole, barring a few pockets, is expensive. In addition, there is also a volatile global scenario to contend with.
Dipan Mehta, BSE broker, feels the market will feel be a bit disappointed by the poll outcome in Maharashtra. But he feels at the broader level election results will be inconsequential as it does not affect the economy.
He says deregulation of diesel is a positive step by the government, but he does not see it as a tough decision. “It is easy to deregulate diesel when prices are down, but when prices go back to USD 110 per barrel, will oil companies have the freedom to raise prices? I don’t think so,” Mehta said.
VK Sharma of HDFC Securities feels the deregulation of diesel and the announcement of gas price hike ahead of schedule will be viewed by the market as major positives. He expects a strong opening on Monday, and says a sustained uptrend will depend on Nifty topping 7950 as it could trigger short covering of positions.
Srivastava sees the hike in gas price as a major positive for Reliance Industries, as he feels prices will be raised by USD 1.40-1.50 mmbtu every six months until it gets to USD 8 mmbtu, the price approved by the UPA government when it was in power. He is selectively bullish on IT, and is very bearish on realty.
Latha Venkatesh and Ekta Batra on CNBC-TV18 discuss the expected results of Maharashtra and Haryana elections with the panellists.
Latha: What is your overall sense, one the big economic decisions, policy decisions that came yesterday and the big political verdict? Tomorrow morning good for the markets?
Srivastava: I think it is good for the market of course. In a manner of speaking, the decision on the deregulation of diesel was made simpler by a drop in prices so that has gone on pretty well but I think there will be an element of little bit of disappointment in terms of the way Maharashtra has turned out because that clearly showed that the verdict is not as equivocal as we expected the markets to be. So yes there will be great positives on the deregulation side, you will have again a bump up in oil marketing companies, which have already run up quite a bit but I don’t think that the euphoria will carry on to the market because Haryana victory was a given in a sense. It was Maharashtra people who were looking at it and that was kind of disappointing. That is one.
Number two is that whatever we say and do, we are in a much more volatile global scenario and therefore the positive which come out both on the global side and on the economy, I think will get sold on to because that is what the market is today, it is an expensive place, IT has not performed well. So barring the oil and marketing block if you see, all other blocks of sectors are fairly under pressure at this point of time and I don’t think the pressure is going away.
Latha: Would you agree with that? Two very important points that Ajay Srivastava is making in on the negative side that the market is an expensive place and therefore the rally could get sold into and more importantly that Maharashtra verdict leaves a doubt in the mind. What is your sense about it?
Mehta: I think from a sentiment point of view, the result in Maharashtra is not exactly positive. On the other hand I think this diesel deregulation and gas price increases will show that the government is on the right track as far as reforms are concerned but by and large, this particular event, the elections is in consequential because end of the day it is not going to impact the economy macros or corporate results per se. so to that extent, we would have a sentimental effect considering that BSE-NSE are both in Maharashtra and Mumbai and we get more involved in the elections but apart from that, it has not been any different.
I would like to add one more negative and that being that so far the question we are asking ourselves is that has the Modi government taken any tough decisions. End of the day, we have got structural problems as far as energy pricing is concerned, as far as power, mining, every particular key industry has certain challenges, the tough decisions need to be taken and so far, I don’t think any tough decisions have been taken. It is easy to deregulate diesel but when oil prices go back to USD 110 per barrel or so, will they start increasing diesel prices and give the freedom to the oil marketing companies, I don’t think so at this point of time.
Ekta: What about the gas price hike? That wouldn’t be a tough decision that they made even earlier then what the date given was?
Mehta: This is kind of a bit of a compromise between what the formula as per Rangarajan committee was and what the present price is. In any case, it was long overdue and in a way it doesn’t affect the general population per se. But having some more tough decisions underway, that would have made a big difference from a long-term point of view.
Ekta: How do you think Reliance would possibly react in tomorrow’s trading session given all of the news on the gas price?
Srivastava: If you look at the global scenario, the gas prices have fallen drastically in the global prices in the last one-two months and absolutely there is a crisis in those markets. So for them to get an increase and it is very clear — every six months they will get USD 1.40-1.50 increase over the path until they reach their target of USD 8. So it is now matter of time. That is one.
Number two is that the decision is that they will credit the money to the gas pool account on the D6 discovery which is a shortfall till the arbitration process finishes. So actually there will be cash lying in the gas pool account with GAIL and it is not with the government of India they have to go to if they win the arbitration. So two great positives, one the cash moves in the gas pool account on that shortfall in production into the new price rate. Number two is a very clear price increase. I think it is a great positive for Reliance. They have got a good deal, forget the price increase, they even got the benefit of cash going into the gas pool account and I think it is a great positive for the company.
Latha: So you expect tomorrow that you are going to see a bump up in Reliance price as well and what would be your take on the OMC stocks? People were building in this gas price hike coming but I thought people were building in a higher number?
Srivastava: One — the reason to build this is that fact also that now with the diesel deregulation gone plus they have said the subsidy if they give at all will be shared between all the private and the public players, which also opens up the room for retailing of oil and petrol by Reliance at some point of time now. So that is also a great positive. So in a sense for Reliance it is a three-four positives. That is what I said, it is a little bit of delay but at least a path is very clear not to happen otherwise it was the binary situation is not happening. So that path is clear. Oil marketing companies – I think it is a great story building up there, they are undervalued and if the government lets them perform independently, they will divest stakes in this company, they may let it go at least to the point where they become literally a commercial oriented enterprise — at some point maybe even consolidate two of these companies together. So I think in the next three years, the OMC will be the great place to be because the reform process is going to give them the first big benefit of both consolidation as well as free play of the market prices.
Latha: What are your first thoughts, how does the market react tomorrow? We still have negative FII numbers, let us remember that but the global scenario at least in the last 24 hours appears to have swung from very pessimistic levels?
Sharma: Let us understand that barring the exit polls, the expectations weren’t there that the current manifestation BJP and other parties would get the kind of seats with full majority in Haryana as well as Maharashtra. Haryana they have got and Maharashtra I think those numbers will not be there. So while it may not sound as exciting because the numbers have not been there, I don’t think it will negate the market to that extent.
First and foremost, market will look at this perspective that here was the oil and gas pricing which we had postponed has now happened. So the one right tick. Second is you have decontrol diesel, second tick. So overall the numbers add up that the markets are now going to look up and they will probably open with a big bang up on Monday itself and thereafter it will be a function of to what extent the market goes should break the 7,950 level then the short covering will happen and mind you the basis of the bull market is essentially begin when the bears get to cover their shorts. So if it triggers then we will see higher levels but definitely positive on Monday.
Ekta: Come the winter session, do you think it is going to be easier for them to possibly push some key reforms, which they haven’t been able to do in the previous sessions such as FDI and insurance?
Mehta: I don’t think so. I don’t think the Rajya Sabha numbers per se are changing. To that extent, I think there were disappointments in the last parliamentary sessions were held. So I think it is status quo as far as getting acts passed and getting bills passed in the Lok Sabha and the Rajya Sabha per se. Of course they have the option of these joint session of Rajya Sabha and Lok Sabha together but they haven’t exercised that option as yet and that is where I was coming from that where are the tough decisions, you want to take some bold decisions, get some legislation pass.
Latha: So your point is rally still get sold into until proved otherwise?
Mehta: Yes, maybe so. But Monday I agree that you may have a bump up, global factors also are favouring plus key announcements and end of the day, I think we are fine with the BJP-Shiv Sena government that is the base case just now and that is always the case until this alliance broke off for various reasons, which we need not go to right now but we are comfortable with that kind of an alliance ruling Maharashtra.