Rate cut expectation muted, avoid PSU banks: Nirmal Bang

Mehraboon Irani, analyst, Nirmal Bang Securities, says that the market does not expect a rate cut to happen in tomorrow's RBI policy announcement. However, the market is expecting a rate cut in January. He has a cautious view on PSU bank stocks because of concerns of asset quality.

Also read: Bullish on Nifty till Budget; bet on cyclicals: Alchemy Cap Below is the edited transcript of his interview to CNBC-TV18. Q: How do you approach banking stock after the on again, off again, move we saw last week?
A: We need to accept the fact that the valuation gap between the private sector banks and public sector banks is for justifiable reasons. The quality of assets as far as PSU banks are concerned, still remains a big question mark. If the market goes up, which I believe will go up in next two-three months then it is possible that some PSU banks could outperform purely from a trading angle.
If there is a rate cut in January, then this valuation gap at least from the short-term angle could narrow down to some extent. As a trader, I would select some public sectors bank but from an investment angle, I will have a positive bias towards private sector banks and I feel that while some of them are ruling at their all-time highs, there are reasons why I don’t see them coming off too sharply from the present levels. Q: After a long time there has been some excitement in metals coinciding with a pull back in the Chinese market. Would you buy any of them?
A: From a fundamental basis it is difficult to justify why the stock prices of some of these metal stocks should move up. There is a great disconnect between economic indicators and stock market performance and so is the performance of individual sector stocks. So if we are looking at some recovery to come in the global economy then possibly the time is correct to go ahead and buy some metal stocks because most of the negatives are already built into the price.
I think the stocks cannot falter too much from the present level and can only possibly go up over a longer period of time, I would pick Tata Steel. Even as of now, we are underweight on this sector. I don’t see too much of a downside for this stock from the present level though a sharp recovery in the performance I don’t see it coming at least for the next one-two quarters. Q: Are you planning to pick up any stock from the real estate pack?
A: From investor point of view, I think the performance of real estate companies could improve if the market goes up, as this sector stocks have been the worst affected. We are already seeing a bounce back in this sector stocks. A trader can buy companies similar to Indiabulls Real Estate.
But from an investment angle, there are very few companies who have a decent balance sheet. Names like Oberoi Realty, Peninsula Land and Prestige Estates are the companies which can be looked at from a little longer term angle.
So while we can expect the real estate stock prices to go up if the market goes up. One needs to accept the fact that while these companies which are not very over leveraged, may not do very well in the short-term because they may not necessarily be the market favourites but ultimately if you want to follow the principle of safety first then one should be very selective in buying real estate stocks. Q: What's the markets expectation from the policy tomorrow?
A: Absolutely muted. Nobody on the street is expecting any action from the Reserve Bank of India (RBI) but most of us are expecting a rate cut to come in January.
The market is expecting a rate cut to come in January but the mid-quarter review from the RBI, something that the market would be looking at along with the advance tax number. So, there are important events this week but I don’t think overall the picture will change. The market has shown serious signs of consolidation and most of the good news which has come out has largely been discounted and acceptably by the market.
Everybody on the street is talking of 6000-6100-6200 coming which makes me feel that the consolidation could last for little longer time. May be a crack could happen if we see a red flag coming from the US as far as avoiding the fiscal cliff is concerned.
It would be dicey to trade during next 5-10 days. But in January I think the market will possibly reconcile itself to the fact that the fiscal cliff will ultimately be avoided, we will have a Budget from one of the favourite finance minister of stock markets coming in February, there will be a rate cut coming in January. So market will again possibly feel a little bit euphoric and after a decline or a consolidation over the next few days there will be reasons enough for the market to possibly start looking up and going up.