Use next mkt rally to book profits in banks: Edelweiss

Ambareesh Baliga of Edelweiss Securities shares his views on the Reserve Bank’s credit policy and advises what stocks to avoid right now.

Also read: Repo hike won't trigger lending rate increase: Vijaya Bank

Below is the edited transcript of Baliga's interview to CNBC-TV18.

Q: Now that the two big events are out of the way what is your bias on the market? Do you think this uptrend will resume or has the commentary from the Reserve Bank of India (RBI) made you a bit cautious?

A: After today's event it is very clear that the governor will not be playing to the gallery, but doing what is required to be done and that has really come out in the policy. I do not think there is any reason for the market to again resume that uptrend in a big way. I think we have seen the top for the market. What I have been saying in the past also that it was a good opportunity to book out to a certain extent.

Q: In terms of the way forward, clearly some of these rate sensitives might continue to be under pressure, because there seems to be more rate hikes on the anvil. What is your sense on how to approach banks, some of the real estate stocks and by and large the rate sensitives?

A: I think we have got an extremely good opportunity in the past few days to book out and that is what I have been advocating for a while. So, even if people have not sold off to a certain extent in banks and rate sensitives, I suppose in next bounce back one should be exiting to a large extent. Whatever said and done, as far as the banks are concerned, the Non-Performing Asset (NPA) issues are going to continue. I do not see the credit growth happening. I really do not see much of an upside from here. So, utilise any upside to exit to whatever extent possible.

Q: Overall, at an index level, would you still sell into these levels? Clearly Rajan has indicated that he will bring down the Marginal Standing Facility (MSF) rates as and when they see stability on the currency. His typical words were MSF will do more of the walking down than repo will do walking up. So those guys who depend on wholesale money like say a Yes Bank on the banking side and all the Non-Banking Financial Companies (NBFC), would you still be positive on them?

A: One thing we need to understand is that this was a liquidity driven rally. We have moved from absolute pessimism around 3 weeks back to exuberance in no time. At the ground level, realities do not really change overnight. So, clearly there was absolutely no room for disappointment because of which I would say that any sort of an upside which one sees as of now should be utilised to book out as much as possible. This is because rates are going to go up atleast for a while.

In the next policy also, we should see another 25-50 bps hike unless the inflation cools off which I really do not see happening in a hurry.

Q: Do you think that it would make sense to get back to some of these defensive pockets like IT, pharma etc.?

A: Best defensive bet when one sees the market slipping down is really cash and not defensives like IT or pharma. But if one has the compulsion of staying invested, then the best pockets to be invested right now firstly could be pharma and IT and then Fast Moving Consumer Goods (FMCG).

Q: Now that the two big events are out of the way do you think the caution in the market could take the markets back to those 5100-5200 levels or have we entered a period where it is just going to be grinding in this consolidation phase and a bit of a range, but the downside has sort of been capped at 5400-5500?

A: I think clearly the downside is more or less capped, unless of course you have a major, major negative news which we cannot even think of as of now. If it is beyond imagination, yes we could break that but otherwise we have already seen the bottom for the market. The way things are the range I would look at for the markets would be between 5500 to the current levels of about 6000 or maximum of 6100.