Kishor Ostwal, Chairman and Managing Director, CNI Research tells Krishna Merchant that the volatility in the markets will increase further. Edited excerpts:
Since the November high, the markets have corrected 20.5 per cent. Do you see de-rating of price to earnings (P\E) forward multiple, thereby raising concerns of the Sensex not bouncing back to its recent high?
The markets are trading at 15 x one-year forward P\E multiple, which is a 15-year average. On fundamental basis, there is little scope for the markets to decline further. I do not expect de-rating of P/E.
The markets have corrected because of short-term triggers and sentiments, which are mainly domestic (inflation, rate worries and political issues).
Also, inadequate systems have caused the markets to correct. The Securities and Exchange Board of India has ordered for a physical settlement in the futures & options (F&O), which has not been introduced. And, in its absence, traders can do bear attack on the markets whenever they want. Besides, volume of some A group shares is higher in the F&O market against the cash market.
The second issue is 95 per cent market-wide position limit in F&O. This has resulted in price manipulation. Last month, Ispat industries surged from Rs 16 to Rs 26, and after hitting the 95 per cent position limit was put under F&O curb. Such things are causing volatility in the markets.
How should investors play the volatility in the markets?
I expect the volatility to increase further. I do not think this is a traders’ market, as there are no long-term investors.
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Even foreign institutional investors (FIIs) have become traders’. I see a clear absence of retail investors in the market, as they are not sure where it is headed.
Where do you see the markets consolidating in the short term?
The markets are likely to consolidate for some more time before an upward move. The Nifty will consolidate for at least two weeks between 5,500 (on the lower side) and 5,950 (on the higher side).
