Hopes of QE3 alive, reforms won't take mkt up: Tandon

Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: We have just wrapped up a pretty lousy series in terms of performance. How are you feeling about the market? Is there going to be a deep cut in May or do you think it will just lumber on?

A: There is a possibility for both situations. May traditionally has not been a strong month for the market and is the time to sell. But I think we have already reached a stage where the level of interest in the market is very low and the market seems to be more resilient than the lack of policy decisions seem to suggest.

So overall, investors are again looking at beyond what's happening in the domestic market and I think to a large extent, it will now be determined by two things. One, whether QE3 (quantitative easing) happens in the US and two, if Sarkozy loses in France.

So we are in interesting times again.

Q: There is a little bit of a risk starting to come in from the US markets. The S&P is back at 1,400. Do you think that that could be used as a cue for risk on global trade and at least move to the upper end of our trading range?

A: That's what one is looking at and clearly as I said, to some extent, that's already been factored into the market.

On its own, the market should not be where it is and should have already cracked. Similarly, the euro should have also cracked. But so far, both are showing strong signs of resilience.

I would therefore argue that the basis of that is an expectation that there will be another bout of funding coming from the US Fed given the weaker numbers in the US which will sustain a kind of risk-on-trade which will keep markets like ours a little better than where they are.

So barring that, on the domestic side I don't see anything which can take the market up. I think everybody is kind of holding their breath and waiting for the money to come in.

Q: The private banking sector has performed well across the board. What's your best pick from the lot and do you think that there could be a re-rating on some of the bank stocks like ICICI Bank ?

A: The market is right now so narrow that pretty much most of the stocks, at least in the frontline, are priced for whatever news that is there already in the market.

The question rests on continued sustained growth. Therefore private sector banks look a little better than their public sector counterparts largely because of capital. So ICICI should do quite well.

Axis has been a consistent performer and there is no reason to change the outlook on that. So long as interest rates remain reasonably robust or high, there is a possibility that the growth rate in private sector banking will continue to remain fairly decent or at least more than the corresponding market share.

Q: What will be the big cue for the market in the near-term? Will it go back to global markets or is there something coming from the domestic front such as increased government activity or initiatives by the RBI in terms of attacking the rupee?

A: I am confused on the local front because the expectations that the market has are actually negative.  I'm at a loss to explain how the local market seems to think that all price increases will be great for the economy.

Though raising the price of diesel to cut fiscal deficit doesn't augur well for the market, the government has managed to change the debate from curtailing expenditure to raising user charges for everything from airports to power and fertiliser. The government is profligate and has to cut expenditure.