Fed unlikely to taper soon; avoid Tata Motors: Sanju Verma

Sanju Verma, MD and CEO, Violet Arch Capital Advisors believes that quantitative easing will not be tapered anytime soon. She feels it will take a while before the US unemployment slips to 6.5 percent.

The fall in the US employment rate is not due to more people getting jobs but due to the fact that a lot of people are voluntarily choosing to stay out of the job market, she told CNBC-TV18 in an interview. Also Read: See mixed Q2 earnings; avoid cement, realty: Edelweiss Talking specifically on stocks, she said Tata Motors looks overvalued at the current level and therefore does not suggest buying it. However, Maruti and Mahindra and Mahindra are her top picks in the auto space. Below is the verbatim transcript of Sanju Verma’s interview on CNBC-TV18 Q: What are you telling your trading clients in particular, to stay put, buy more? A: This market has been very volatile and earlier I had said there will not be any QE tapering given that has been at the fulcrum of how markets, particularly emerging markets (EMs) like ours that are so sensitive to dollar inflows will behave. I said there will be no QE tapering and I continue to stick with that view because the unemployment rate in the US is falling not because the economy is doing well but because more and more people are voluntarily choosing to stay out of the job market. It will be quite a while before we see the unemployment rates falling down to 6.5 percent or inflation in the US going up to 2.5 percent, either one of these factors has to be there and ideally both for QE taper to even start meaningfully. In the run-up to the last two general elections, in the preceding year, the broader indices in 2004 and then again in 1999 had run up anywhere between 50-90 percent. In 2009 the rally did not happen pre-elections, there was a 30 percent plus rally post elections. I think things will play out pretty much in the manner that they did in 2009. We will have a meaningful rally post elections, it is difficult to quantify the reasons exactly why that will be the case but the reason why I believe that we will not see any meaningful rally in the run-up to the elections which is barely seven months away is because there are big perception issues. The rupee has clawed back 10 percent in the last couple of weeks. We all know now that the worst is behind us with respect to the current account deficit (CAD), may be for the September quarter that will come in at barely USD 5.5-6 billion which is excellent given there has been so much hype around that. Also, the core sector number that came in for August at 3.7 percent year-on-year is a precursor of better times to come as far as the infrastructure space is concerned. But there is a perception problem, according to which there is a total breakdown of the executive and legislative functions and it is too much of judicial activism that is playing spoilsport. It seems the Supreme Court decides on mundane matters like whether clinical trial should happen, to decide on whether there was a proper bidding when National Thermal Power Corporation (NTPC) gave the contract to Lanco for equipments, to something like even the telecom space where things reached such a level that there had to be a presidential decreed post the cancellation by Supreme Court of the 122, 2G licenses. Unless this perception bit is resolved, I don't think markets will rally meaningfully. Q: Since you do believe that there is no meaningful rally that one can expect in this market from here, where could the upside be capped? A: I said there will not be any meaningful rally but I would like to put a disclaimer and a caveat. I believe that in the month of October technicals are worth that we will break the September high on the Nifty. In September, the Nifty touched the high of 6142. There will not be any meaningful rally but not before the Nifty clocks up all the way to 6300 or may be even 6400, post that you will see the fall that I am talking of. I believe it is a once in a decade formation called the climax formation which happens when the markets move in N shaped manner. They first go up like a rocket and then the fall is equally dramatic. The reason why I would lend some credence to this opinion is the fact that the BSE Sensex coming from the Nifty and going back to the BSE, the BSE 30 has had four simultaneous highs, one in January, one in May this year, one in July and one most recently in September. It has been trying to breakout each time after making a high but falls back. Every subsequent high has been higher than the preceding high which means that there is still some room left to go up may be a couple of percentage points more. But after that I think the markets will start languishing or fall dramatically, making the next big upmove after seven months once the general elections are over.