Nifty won't break 5700; buy midcap PSBs, avoid HUL: Quantum

Political events in the US - shut down of the government and the debt ceiling have kept the markets under pressure and are adding more uncertainty to the already gloomy global scenario.

Sanjay Dutt of Quantum Securities sees this uncertainty extending to Indian market as well, but adds that downsides are limited. In an interview to CNBC-TV18, Dutt said that the Nifty is unlikely to break 5,700.  Like most market experts, he is also of the view that the debt ceiling issue is the more important than the US shutdown. Dutt likes the beaten down banking space as a contrarian bet and prefers to buy midcap PSU banks at current prices.  He is not too bullish on FMCG giant HUL and is not looking to buy it at current price. Infact he feels one should not buy HUL even if went down another five-seven percent. Dutt is cautious on IT stocks. Meanwhile, he sees the Indian rupee strengthening further going forward. He added that analysts expect the Indian currency to trade in range of 62-64/USD in short-term. Also Read: Ex-Treasury official says stalemate could trigger US recession Below is the edited transcript of Sanjay Dutt's interview with CNBC-TV18 Q: Global markets are unruffled by the government shutdown etc but how concerned would you be with regards to global cues and how much it could derail our markets? A: Most important is the next event that the market will now start focusing on and that is the October 17 debt ceiling and the possibility of US default on some repayments. It does seem remote, but market hates uncertainty. Once again we will start playing that event in the next few days and that is going to weigh on everyone’s mind. Because if you are not able to reach a resolution regarding the shutdown or the debt ceiling by this weekend or by Monday, then the market would start fretting about what is going to happen on October 17 because that is a bigger event than the shutdown for the global financial markets. Q: The rupee has been an outstanding outperformer, it is not behaving like a high beta currency and that is because of the special flows that foreign currency non-resident (FCNR) incentives have arranged. If we assume that the rupee is going to be a steady performer, would you say the downside is limited even if there were these big uncertainties on debt ceiling? A: Downsides are limited and the correction from 6,120-6,130 levels to 5,700 odd levels is more a correction, the move that took place on the lows of 5,200 and then rapidly went up to 6,100. So, it’s got to do more with that than as much with global events. That’s the reason why we saw 400 point odd correction panning out over the last five-six trading sessions. I do not see 5,700 level breaking. On the currency, more the uncertainty in the US, more will be complications. The dollar is going to weaken, the dollar cannot hold on to this level, which means that the entire currency basket will adjust and that will have an impact on the rupee. On the FCNR issue, I have one short comment to make. There is a bit of hidden play which Reserve Bank of India (RBI) is aware of some amount of leverage trade have come into the system that may cause a little worry if it keeps getting prolonged. So, therefore RBI needs to be little careful on that front as to how long does it want to use those kind of flows because those have their own complications if the way some of the leverages on those flows are playing out in the overseas markets. Q: Do you think the worst is over for the Bank Nifty; is there anything in the bank space that you like? A: I like the bank space a lot and as a contrarian play that is the place to be but may not be for immediate short-term, you will have a rough choppy ride. It is going to be difficult riding out the waves on the Bank Nifty one played out because you need to have strong heart to play out the Bank Nifty.