Market may reach 11500 level

Amit Dalal of Amit Nalin Securities says that the markets will first touch the 10,500 to 10,650 levels for some time and after that it will definitely reach the 11,500 level in the next 20 days of trading.

He says that this time the markets have corrected to 9,000 level, EPS growth has been about 14% and everyone is talking about a deviation from the fair value.

He adds that perhaps looking at the P/E chart for the whole of last year on a day to day basis, assuming an EPS of FY06 March and doing the same thing this year will be a good indicator of the highs and lows that one can expect to see as a trading pattern for the next month or two.

He says that when the markets correct and there is a basic disinterest both ways. There aren't many people who have bought at low levels, so then there aren't that many sellers when the markets ride up and the valuations always look cheaper, relative to the price that has been seen earlier for any stock by stock pattern.

He feels that certain events like the Tata Steel preferential issue excited people, although it has absolutely no bearing on the secondary market price of Tisco, which again helped the Index to move up a little. Hence, he would not be averse to thinking that the retail participation or trader participation has again come back with a little more optimism than it was fortnight ago.

He does not think that this year the markets will be able to delink themselves from the global markets because the global cues and the global factors are what really brought the fall in May. He says that the experience is not going to go away from people's mind and it is going to be a global market kind of leading where our market will go in the time to come.

He states that psychologically, we have now assumed that 15 PE is what is considered a fair value and a deviation upwards or downwards is based on the sentiment and expectations. The EPS for the Index forecast is about Rs 555-557. Given that, he says that in the past one or two months, there has been a huge cleansing of large positions in the market and a lot of the selling from the institution is behind us, and the earnings are expected to be quite encouraging the first quarter atleast.

Moreover he says that the markets might see a deviation, perhaps even higher than 10%, from what one would consider a fair value. But he states that anything more aggressive than that, or markets testing previous highs, given the global environment would be an extremely dangerous position for the market.

About the two stocks in news, that is Videocon for the acquisition it has done and HMT, Dalal does not track HMT and he did track Videocon a lot when they did the Thomson acquisition. Going on the pattern with which they did that acquisition, he feels that a lesson to be learnt here is that these assets worldwide are available at very throw away prices.

The reason for that is the change in technology that is taking place, which is levying this to become a very low-margin market. In his view, everybody is moving into flat-screen, plasma and LCD displays and therefore, these assets don't come at a heavy price to the buyer.

He says that there is no choice for Videocon and they have to make these acquisitions if they want to remain in a capacity, which is completely perhaps profitable in the future, if they want to remain where they are with the technology that they have. They are capitalising on their glass-shell technology in India and perhaps, he feels that this acquisition will allow them to bring out more capacity from their domestic operations.