Sanju Verma gives thumbs-up to market, thumbs-down to FSA

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Sanju Verma gives thumbs-up to market, thumbs-down to FSA

The current market rally is clearly not a dead cat bounce or a bear market rally, says Sanju Verma, MD & CEO of Violet Arch Capital Advisors.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Coal India BSE | NSE 29/05/12 Are Mutual Funds betting on Coal India? Other Stocks in this news Crompton Greaves | Punj Lloyd | Voltas | Tata Motors |

The current market rally is clearly not a dead cat bounce or a bear market rally, says Sanju Verma, MD & CEO of Violet Arch Capital Advisors. 

"Recently, the BSE F&O clocked a turnover of Rs 50,000 crore. We are used to seeing the BSE F&O clocking turnover of barely Rs 5,000-6,000 crore odd," she explains adding, "...a bear market rally neither has the depth nor the breadth."

"The market could very well see a new high in 2012," Verma told CNBC-TV18.

However, Verma feels India has become relatively expensive after the recent rally, but adds, "valuations are unlikely to be key driver going forward given the high liquidity conditions."

"I won't be surprised to see a slight technical correction," says Verma.

Verma expects the rally in power companies to be short-lived. On the matter of Coal India , she feels the government is being partial to independent power producers. "I think the government forcing CIL to sign FSAs is illogical," says Verma, who is also bullish on the PSU major on its strong financial performance.

Below is an edited transcript of her interview on CNBC-TV18. Also watch the attached videos.

Q: There has been a 1,000 points rally in six weeks. Have we started on a bull market or would you still be cautious?

A: Let me start by quoting the famous saying by Keynes, 'markets can stay irrational for a far longer period than you or I can stay solvent.' I was thinking about this last year when anything that came out by way of news flow was deemed as bad news and the saying holds true now. In six weeks, the Nifty has risen 12.5% in rupee terms and almost 20% in dollar terms given that the rupee has appreciated by more than 7% calendar year-to-date.

So, it's very difficult to say whether this is sheer euphoria or just a liquidity driven rally or whether there was so much of pessimism last year that it had to give in to some kind of sanity and optimism. Maybe, partially all of that I said is true but one thing which is very evident from the rally of the last six weeks is that this is clearly not a dead cat bounce, it's not a relief rally and it is by no measure of imagination a bear market rally.

I have heard so many speakers say this is, at best, a bear market rally. Remember that a bear market rally neither has depth nor does it have breadth. For instance, look at the 300 point plus rally yesterday, the advance-decline ratio was a whopping 5:2, which means that this rally has a lot of breadth. As far as the depth goes, I think that is clearly evident from the fact that for the first time in a long time something the BSE clocked a turnover of Rs 50,000 crore on the F&O side.

We are used to seeing the BSE clock a turnover of barely Rs 5,000-6,000 crore odd on the F&O side. F&O is largely associated with NSE which has been doing volumes of Rs 100,000-120,000 crore odd for as long as we can remember. So clearly, this is not a bear market rally. Whether this will sustain going forward, my personal sense is that you will see the markets pausing for a while, taking a bit of a breather and I think that will come about not because liquidity is going to fly away. I think liquidity will be plenty. But my personal sense is that what will drive market direction, not only in India but in emerging markets and in other riskier asset classes as well, will be how the geopolitical situation pans out, something which I have been reinforcing time and again.

My personal sense is that whether Iran decides on escalation or capitulation, I think that is the swing factor, which will decide how riskier assets behave. If Iran decides to escalate things then oil in a few hours could go to in excess of USD 150 a barrel. This sounds totally ridiculous and implausible, as I speak of it now, but there is a huge possibility of that happening.