In an interview with CNBC-TV18, Sanju Verma, Chief Executive Officer of Institutional Business Proactive Universal Group, spoke about her reading of the market and her outlook.

Here is a verbatim transcript of an exclusive interview with Sanju Verma on CNBC-TV18. Also watch the accompanying video.

Q: Intense volatility is seen over the last couple of weeks. Which way do you see the market coming out of this by the yearend?

A: The market is a complex animal and has a lot of moving parts to it. As most of us have agreed on it, there is one premise on which there seems to be widespread convergence and consensus irrespective of whether you want to dismiss this rally as just a sucker’s rally or whether you want to believe that this is a part of a beginning of a secular bull market. By and large this is a part of reflation, anti-dollar and liquidity fuelled rally. Most of us believe in the key question whether interest rates in the US and globally, in other markets like UK, rise in the next two-three quarters? The answer from my end is no. Ben Bernanke’s said that ultra low interest rates are here to stay for an extended period. The catch is the phrase “extended period”. The cues have been more or less mixed and unemployment stands at 9.2% in the euro zone and at 26 year high in the US at 1.2%. This recovery is jobless in many ways and to that extent low interest rates are here to stay.

People who believe that there is an asset bubble in the making and this could bring us back to square one from where we started off from given that the Lehman crisis, had a lot to do with asset prices getting inflated and a check and balance not being imposed at the right time. The only answer to it is that crude’s high was USD 150 per bbl; it’s trading at about USD 76-77 per bbl after yesterday’s fall. Copper was at its high, trading at more than USD 9,000. We are at USD 6,500 or so currently, look at the S&P 500, it touched its high on October 9th 2007 trading at 1,565, we are still at below 1,100 on the S&P. So my sense is people who are calling an asset bubble are perhaps jumping the gun. Bubbles are always of two types- one which is a credit asset bubble which finally leads to bank defaults and bad lending and there is an asset bubble which is purely based on irrational exuberance and not that bubbles are essentially good but it’s a Hobson’s choice and if I have to pick up one, I think this is not a credit inflated lead asset buddle, its more a liquidity fuelled, irrational exuberance lead bubble which is slightly more benign and I think they are still far off from the highs in most commodities and asset classes. Fine, gold has touched more than USD 1,100 an ounce but it’s still far off from the peak of USD 2,000 an ounce touched way back in 1980s. So I think it’s premature to talk of any kind of asset bubble. It is a lot of digging around and fishing around in illusory water.

I believe that the interest rates continue to be benign and there is a reason to think that it will happen because inflation in the US was 5.5-6%, in the euro zone at 5.5-6% 18 months back. Today, both in the US and in the euro zone, you have negative inflation to the tune of 1-1.2%. UK is the only country from the developed markets where inflation is in the positive territory. So if inflation is negative, real interest rates are negative and most asset prices are half or 1/4th of where they were. I do not think interest rates will be raised and to that extent I believe that the rally still has more legs to it.       

Q: What are your thoughts on Tata Motors and commercial vehicle (CV) space?

A: Tata Motors continues to be my favourite. I have been slightly partial to Maruti and Mahindra & Mahindra in the past. The stellar numbers of Tata Motors, for September quarter, made us think that out of Rs 729 crore profit for the September quarter, which the company has declared, maybe Rs 270-300 crore is purely on account of excise duty reduction to the tune of 400-500 bps, which the government gave the benefit of December last year. However, even if you strip that aside excluding the gains arising from excise duty reductions by the government, Tata Motors would have still posted more than 50% growth in adjusted profit. So at an operational level, things are improving. Also we believe that the economic recovery is on its way, so CV sale should start picking up. CV sales react with a bit of a lag to the economic recovery. So if you believe that the recovery was underway a quarter, then between January to March quarter next year, CV sales should start peaking off. So January-March will be an excellent quarter. Also from April Euro IV, emission norms will be implemented, which will make on an average a CV expensive to the tune of incrementally 50,000 to 60,000 a unit. Hence, a lot of dealers and stockists will try and stock ahead of the Euro IV emission norms coming into place. This means that you could see a stock out in the January to March quarter.

It is true that month-on-month CV sales may have disappointed and the growth is only 15-20% year on year. However, Tata Motors has posted a stellar set of numbers only on the back of light commercial vehicles (LCV) growth. Medium and heavy commercial vehicles (MHCV) are still not growing. However, this is their high margin business. They make about 10-11% in LVCs and 13-14% in MHCVs. So if indeed there is stock out and a rebound, two quarters hence in the MHCV segment- their key bread and butter business, then the stock should be rerated. To that extent, there is still room for more in terms of capital appreciation with respect to Tata Motors.