May 10, 2013, 03.06 PM | Source: CNBC-TV18

Rally almost over, stay clear of PSU banks: Dalton's Bhat

UR Bhat of Dalton Capital advises not to expect much rise in the market from current levels. He feels the rally aided by foreign funds is more or less over and the market could take a turn.

Don’t expect the market to see a dramatic rise from current levels, cautions UR Bhat, MD, Dalton Capital Advisors. This rally aided by foreign funds is more or less over and the market could take a turn, he said in an interview with CNBC-TV18.

Also Read: Rally driven by FII flows; see some policy action: CIMB

FIIs have pumped in about USD 12 billion since January, which led to just 3 percent upmove in the Nifty. So, we need more money to push the index at significantly high levels. Also, there not much improvement in fundamental factors like earnings, macros and interest rates, Bhat said.

Unless there no major political crisis in India, the Nifty would continue to get reasonable support at its 200 day moving average level of 5700. Given the dependence of the Indian equities more on foreign money, the upside looks just about 50 points from hereon, he added.

On sectors, oil marketing companies are likely to get a fillip if diesel price is hiked again. But given the current political set up, one may not see much tweaking to the price.

Bhat is more bullish on private sector banks over public sector lenders. “The valuation of private sector banks is much higher than public sector banks (PSBs). They have been able to manage the stress in their balance sheet well. Given the concerns on asset quality there is more pain left there (in state-owned banks).” He suggests investors to stay away from state-owned banks for some more time.

Below is the verbatim transcript of UR Bhat's interview on CNBC-TV18

Q: Fantastic run so far aided by huge dollops of liquidity. Do you see more upside to this market, fresh highs or do you think the run is coming towards a close?

A: The run had its course, largely because of the fact that even something like USD 12 billion of money that has come since January from FIIs has just resulted in a 3 percent move in the Nifty. Therefore, more and more money is required to run the market up which suggests that the market is reaching a level where it could take a turn.

On the fundamental side, there is nothing much to commend the market to go higher than here, whether it is on the macro side, earnings growth side, on the interest rate side or even the muddled politics that we live in. Therefore, the market has run its course. There might be a slight movement upwards, but not dramatic movements from here.

Q: There is so much chatter in the market about the possibility of another diesel price hike, the quantum of which could be higher than the routine 50 paisa that we have been seeing. What is your expectation and if it comes through what could be the impact on the market?

A: No case for that monthly hike to have stopped, but if there is a revival, it is certainly good. It shows that business as usual is continuing. So we have a very good fillip to at least the oil marketing companies (OMCs) if that comes about. There are some arrears for almost two months now and if that is made up and if there is a move towards free pricing that will be wonderful.
Given the state of the polity and decision making at the political level, I don't know whether the political set up would allow such dramatic changes towards free price movement.

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