Positive on banks, sugar; negative on cement: Taib India

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In an interview with CNBC-TV18, Jagdish Malkani, Country Head of Taib India, spoke about his reading of the markets, outlook ahead and stocks/sector picks.

Here is a verbatim transcript of Jagdish Malkani's exclusive interview with CNBC-TV18. Also watch the video

Q: The market seems to have put all the good earnings behind. Do you concur with the view that the best is already in price for most of these stocks the market is just looking ahead for many more triggers especially on the macro front?

A: I would think as some of us have been saying valuations have been rich, and valuations are rich and have been rich there has been a fair bit of news coming out of the corporate sector but a lot of that has been built in the prices and the Sensex level has been a one big yawn. It's been stuck in one range waiting to break out, really it's been a midcap driven kind of a market for the last three four weeks, I would say and stock and sector-specific and I think a lot of international cues are really driving us now.

We are still among the better and firmer emerging markets and today for example it's China again clearly sending some jitters down Asia this is after a good overnight performance at Dow etc, so clearly this is worrying the world and the dollar getting stronger but China in particular strong talk from the Prime Minister downwards tightening of credit etc so that is what is rattling even our market the Hang Seng is down, China badly down.

Q: What have you made of some of these smaller real estate numbers we have seen because that has not looked bad whether in terms of sales or how they have improved their margins?

A: I always feel those companies really less than what they need to you have to really poke around, they are invariably full of SPV and subsidiaries etc and it's really the mood and interest rates and the anecdotal evidence that one should drive one's reality purchases or sales as they were, so far yes the zing is back considering they were nearly in the mob a few months ago especially the pockets of residential upper end, the south Mumbai, Gurgaon, the hot pockets even some of the commercial projects are again starting to make some sense on yield basis, and some of the better markets.

So with a lot of caution, also interest rates rise ahead so I think very selectively the market is also running ahead of itself Bombay Dyeing being on a real spree and also some of the other stocks but selectively there are good stories in there.

Q: Would holding on to banks be a safe bet now considering the fact that some much of it is already in the price many of them have come out with some stellar numbers but what's the future looking like?

A: This is a very popular and hot sector for FIIs in particular and with interest rate rises on the anvil they have been kind of out of the runs and probably undeservedly so and between them I prefer private sector banks and especially Axis and HDFC Bank have come out really stellar results in the big pack so you have got those biggies out there and you have got a lot of very good especially the southern one and a lot of good private sector banks with maybe some very good value and also some M&A activity like Federal Bank, IDBI etc.

PSU Banks I would still stick with the biggies, SBI, in spite of some of the gloomy prognosis form Mr. Bhatt but still you cannot have an India portfolio without SBI and then BoB, Union Bank are really good again, a bit richly priced but if you have to buy those are the ones that I would look at.

Q: What about midcap IT? Would you think they would perform going onto the earnings season?

A: Clearly in the initial euphoria post Infosys and the TCS results and some of the early midcaps were not bad clearly suggesting that the worst is over for the sector and I must say I am also in the camp IT services, especially when we service BFSI is looking much better there is no option but to turn to off shoring like India clients but really speaking that will all only add fact to the fire of the big five of India consolidating even more and taking more of a market share of expanding pie.

So by and large, one should be with those and my pick would be TCS, Infosys, MphasiS in that order that big pack but there are stories in there that there could be some M&A activity the likes of 3i, ICICI has still some more to sell or select plays like that but in there also two weeks ago in euphoria quite a few just ran ahead of themselves in the midcap and smallcap IT space.

Q: What you make of the recent pall of gloom over sugar?

A: There is a total dichotomy what you can call and yesterday even you guys must have covered that, the international prices for raw hit a 29-year high and the whites also so here it's more of government the big stick approach.

Mr. Pawar is determined to have those wholesale prices down and transmitting into retail but ultimately the market forces must prevail there is still that huge shortfall and there is still a massive imbroglio of raw sugar lying since months at the ports etc so think it's pretty temporary or we are still going to see some and already some of the results are absolutely stupendous and that will continue and in that I would tend to go with the southern pack, which are relatively apolitical and my top pick would be Renuka which has all the refining capacity and buzz of another acquisition on the anvil - just come out with the great results the bonus in the price etc.

Tomorrow the small pack sugar companies may come out with very good results the Ponni Sugars, there is one called Dharni and the north Triveni mainly because of the restructuring the value unlocking will happen even of the turbine business and Balrampur so overall I think this space has still got a long way to go.

Q: What is your view on steel; the rumblings are that the extremely good numbers are expected this time thanks to the steel prices where do you see the steel lot headed from here?

A: I would be very selective, Tata Steel would be the top of my picks and also JSW in general are extremely well managed and aggressive and share holder friendly, I'm nervous in general about the shareholder valuations and I have to confess but if one has to play this game then these are the kind of stocks I would look at one commodity I am getting rather nervous about I have to say is cement, it has had a great run and good dispatch numbers December etc but anecdotal evidence suggests that it's starting to peter and prices will start to flag there is a lot of composition for the same business. So I would be really wary and it's past its best buy date and from here onwards I think one needs to be cautious putting in mildly if not in sell mode almost.