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Nifty going to 8k; buy cyclicals on decline: Dhiraj Agarwal

The sell-off in Indian equities is likely to continue and the Nifty may decline some 20 percent and test 8,000 levels, believes market expert Dhiraj Agarwal.

“When markets stop reacting positively to good news that is usually a sign that all the good news is priced in,” he told CNBC-TV18’s Latha Venkatesh and Sonia Shenoy in an interview.

“From a longer term point of view, in the dip, I would still accumulate investment cycle plays so capital goods, construction, banks [would be good buys],” he added.

Below is the transcript of the interview on CNBC-TV18.

Latha: We have seen this market move off from the 9000 plus mark on the day of the rate cut which should have been a celebratory day. What is the sense you are getting, are we going to meander towards 8000, are there deep cuts coming in or this is a temporary lull, people will come in – just how is the market looking over the next one or two quarters?

A: I think we head down. Typically I have noticed in the past that when markets stop reacting positively to good news that is usually a sign that all the good news is priced in. So, in the last one month itself we have seen sort of a dovish Fed policy, interest rate cut by Reserve Bank of India (RBI) and a fairly decent Budget and the market reaction to all three events was tick up for a few hours, maybe a couple of days and then sell off. So that at this point of time tells me that it is all priced in.

A lot of times market is all about what the market is pricing in versus what the reality is. So, I think it is pricing in all the good news. It is perhaps not pricing in some of the earnings disappointments which will come in now in the March quarter results. So, to answer your question we could head down close to 8000.

Latha: On the flip side, money is still cheap. We were talking of a potential Fed rate hike, if not in June in September but one on 2015 for sure. To counter it, quarter percent is still very cheap money. As well you have the ECB which has just started printing money at a fairly robust pace and Japan continuing. So, should we therefore expect a lot of sell-off at all since there is still money sloshing?

A: I don’t think we should expect a lot of sell-off. If you are looking at will all this result in a few billion dollars of outflows from the country, the answer is no. Again that has to be seen in the backdrop of what is happening. Money is still coming in and yet the market is not holding. So, the money doesn’t need to go out for the market to come down, it just needs to stop coming in for a while or come in at a very small pace.

So, the market at this point of time is showing signs of gravity. So, it needs a lot of fuel to keep it up there and much more positive news than what the market is already getting to keep it up there which is a bit difficult.

Sonia: You did say that you expect the Nifty to perhaps go downwards to the 8000 level. If it does then what are the stocks or what are the sectors that you would immediately go ahead and lap up?

A: From a longer term point of view, I have always maintained that everything which the government is doing on the execution front is all positive. It may not have immediate impact, it may not have immediate short-terms joys from the point of view of financial market but a basic system and process has been put into place for reviving the investment cycle. So, from a longer term point of view, in the dip I would still accumulate investment cycle plays so capital goods, construction, banks.

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