Nifty likely to see 5050-5000 soon, says Baliga

It's been a bad start to the week. The markets got off to a weak start and things just kept getting worse through the day. The BSE Sensex fell nearly 2% to its lowest close in two months on Monday, hit by uncertainty over short-term capital gains taxes for derivative products sold to foreign investors.

Brokers circulated notes on Friday and Monday warning certain provisions in the 2012-13 budget announced earlier this month raised the prospect the government could tax so-called participatory notes, or P-notes, through which some foreign investors buy into Indian equities.

Banking stocks were among the biggest decliners, hit as well by caution ahead of the government's borrowing calendar due this week.

The Nifty ended the day below 5,200 mark, while the Sensex lost 309 points to close at 17,052.

According to Sudarshan Sukhani of s2analytics.com this is not a good time to add to short positions. "You just maintain them but now when we are going through a test of 5170 the earlier lows, this is not any more an opportunity to add. It will have to be after a break down," he explained.

Speaking to CNBC-TV18, Ambareesh Baliga of Way2Wealth and Prakash Diwan, Asit C Mehta Investment spoke about their reading of the market and the road ahead.

Below is an edited transcript of their interview on CNBC-TV18. Also watch the attached videos.

Q: A word from your end on this entire GAAR issue. How worried the market is at this point in time?

Baliga: Market is surely worried. We are seeing some of P-notes selling and some sort of advance selling by local investors because of which we are seeing this cut of nearly 90 points today. It is possible that we could break that most important 200 day moving average at about 5170 and we could look at levels of about 5000-5050 because overall there are too many headwinds. And this sort of intraday volatility and also the overnight volatility, which we have been seeing in the last 4-5 days, we really can't have a market, which is plus 90 points on one day, minus 130 on the other day and again plus 45-50 on one day.

It's quite difficult for people to trade and this itself will lead to the market actually having lower volumes and possibly we could see those levels of about 5000-5050 soon.

Q: We don't have any clarity on what the modalities of this could be, but given what we have seen in the past with such a case when this P-note issue had cropped up, do you expect to see a lot of accelerated selling pressure in the midcaps and some of these highly traded names?

Baliga: I think that will be across because its just not that P-notes are there only in the midcaps. You have P-notes across the largecaps, so at least for the next couple of days - because of this fear - you will see that selling coming in and that itself will accelerate the markets to go to the levels we have been talking about.

Q: Where is the selling coming in from? Do you think its opportunistic shorting or have you actually been picking up news of some genuine global selling today in the market?

Baliga: We have been hearing global selling but at the same time the local investors are also becoming opportunistic and selling off at this point of time. Selling will actually continue for a while longer, possibly till the end of the month.

Q: After hearing all the conversations that we have had with legal experts, what have you made as the net move on the market post getting more clarity on this entire issue? Do you expect to see a lot more selling pressure or do you think it will just be devoid of liquidity and perhaps move in a particular range?

Baliga: You will have the selling pressure till the end of the year, especially those who are based in Mauritius. They would prefer to sell off before the end of the year. But again going ahead, if its very clear that its going to be only prospective, then I don't see too much of an issue. However, incase that fear is there that it could be retrospective then investment climate itself will get vitiated and I suppose the downtrend or the nervousness will continue for a while longer.

Whatever said and done, at lower levels, liquidity is there in the world markets, which will actually flow into India for the relative growth which we will see here comparatively. So incase we see those lower levels surely it would be time to start buying.