Remain underweight on banking sector: Rada Advisors

Nitin Raheja, CIO, Rada Advisors, said despite PSU banks' numbers belying fear psychosis in the markets, he remains underweight on that sector as inflation concerns still remain.

If markets carry on at the same pace, he expects Sensex earnings to grow at 15%.

Excerpts from CNBC-TV18's exclusive interview with Nitin Raheja:

Q: What is your view on the PSU banking space and the kind of numbers these banks have reported?

A: If one takes a look at the entire banking space, clearly it has surprised on the upside. In the month of March, there was a huge fear psychosis that had built up. People were not really sure what kind of impact the derivatives or the subprime crisis could have on the whole market and more so on the banking sector. The banking sector, private sector banks more noteworthy, but even the PSU banks have actually come out with numbers which have belied a lot of those fears and put them in the background. So what one is seeing in the market is some sort of a return of faith.

Q: Are you still a buyer in any of these counters?

A: At the end of the day, on banking we are not very optimistic at this point of time with inflation showing no signs of easing out. We are yet some time away from that. Also the spreads of the banks will be under compression in this scenario, so at this point of time we would rather be underweight on the sector.

Q: How much more leg would you give this rally? Do you think that after some fairly bullish statements from the RBI Governor and 8-8.5% forecast, no rate hike and then the US FOMC if it were to come with any signal that it will pause - does it look to you like this rally can extend itself?

A: Markets have once again done what they are best at doing - surprising people at the end of the day and making everybody look foolish. The bottomline is that there was a consensus bearish view on the market that has emanated and one saw that in the form of short positions buildup. But if one were take a little long-term view at the end of the day, I would be very surprised if the markets were to carry on in this pace for a significantly longer period because, once one scales down estimates, then you are talking of growth in the region of 15% for corporate India or the Sensex.

So at this level if one is trading at about 17 times earnings, one is fairly priced for the region. It would take some huge amounts of liquidity flow to reverse itself and become positive for the markets to move on, but otherwise markets are fairly priced. The upsides here should not be significant but at the same time given the results that have come out, whether there is an immediate significant downside trigger - I really doubt it.

Q: Infosys has rallied about 30% from its lows, but IT as a sector - what's your view on that and how much more can it rally?

A: Look at it this way, if you believe your call on the US market is that there would be a recession, we have only seen the beginning of it. So we have seen the BFSI sector being the worst affected of the lot. How long before it starts percolating downwards towards other sectors and other areas? So now we are saying that your largest customer is in a shadow or is in a problem, you don’t know how this could happen and that is actually reflected in terms of the guidance of most companies. They have been very cautious because nobody knows how this is going to pan out. Stocks have seen a fair run up. If you take even a stock like the Infosys - it is trading at its historical top end of the peg ratio, so we don’t see too much of an upside in it.