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Aug 28, 2012, 12.13 PM IST
Global markets have been in a lack luster mode from past few sessions. All eyes are set on Jackson Hole conference scheduled on August 31and the European Central Bank (ECB) meet in September.
Global markets have been lackluster for the past few sessions as investors await US Federal Reserve chairman Ben Bernanke’s comments on the US economy this Friday.
A section of investors is hoping that the Fed may announce another round of quantitative easing at the Jackson Hole conference. Such hopes will persist next month too as the European Central Bank (ECB) meets.
Saurabh Mukherjea, head of equities, Ambit Capital expects the Sensex to rally nearly 1000 points to 18500, if global central banks inject a fresh dose of liquidity. So, he suggests investors to wait for these key events play out before booking profits.
On the other hand, if the policy overhang remains in India then markets would correct maximum 5% over the next two-three weeks. "I don't think there is that much more than 5% factored into the market about reform and policy," he added.
Meanwhile, Mukherjea is bearish on the banking sector. He has a sell call on private sector banks like Axis and HDFC . He is also cautious about consumer discretionary stocks like Titan Industries and Hero MotoCorp .
Below is the edited transcript of Mukherjea’s interview with CNBC-TV18.
Q: You guys have been playing for this upmove in the market but would you say its time to take some profits now?
A: We have been discussing this with clients over the last 2-3 days whether it is time to take some risk off the table. Whilst I still believe its worth waiting for Jackson Hole on August 31and what the European Central Banks (ECB) does in September. We are becoming more convinced about taking risk off the table in Indian banks.
Our worries are increasing by the passing week. Similarly, consumer discretionary plays such as Titan Industries, HeroMoto Corp. We have been getting fair bit of evidence from our on the ground sources that consumer spend is cracking quite comprehensively in this monsoon season.
Q: From the 17600 level on the Sensex till what level do you think the market can hold its nerve?
A: There are two scenarios clearly on the political front. If we do go into an unstable political scenario over the next two-three weeks then we will shed 5% on the back of unstable politics. I don’t think there is that much more than 5% factored into the market about reform and policy.
The other scenario is if our politics holds up, we actually get some reform, diesel price hikes in September once the monsoon session ends, Jackson Hole works out and the ECB plays its part. Then we are looking at something like an 18,500.
So, 5% on the downside and something like 7-8% on the upside. Banks are a sector, I would avoid regardless of which scenario you look at. Consumer discretionary plays it is worth getting out of some of the fully valued plays as quickly as investors can.
Q: What if Jackson Hole and the ECB disappoint this weekend? Markets do not get the liquidity they are looking for immediately at least. What could that mean in terms of a pull down?
A: The fully valued plays in consumer Titan and Jubilant Foodwork will feel some of the pressure and the other lag will come into Indian banks. However, you look at it 26% of our index being BFSI doesn’t quite stack up in an economy growing at 6%.
So, at a structural level as well that’s where big ticket concerns are building up. Large investors that I talked to are most concerned about Indian banks in our market at the moment.
Q: With respect to private sector banks, where are you the most cautious and what levels do you expect these stocks to go down to?
A: The challenge is for the more fully valued banks. An Axis Bank at two times has been a source of concern for us for some time. The more the economy drifts, the greater our concern becomes for a bank trading at two times.
In the public sector, State Bank of India is the bank we have been negative about close to two years now. In the public sector undertaking (PSU) sector that is the bank which is most exposed to a down drift in the economy and continued policy paralysis.
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