A 25 bps rate cut likely in Oct; Infy, PSBs a good bet: Quantum

He also shared his view on the upcoming ICICI Pru IPO, non-banking finance companies, Yes Bank and Reliance Capital among others.Below is the verbatim transcript of Sanjay Dutt’s interview to Anuj Singhal, Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Anuj: You have been making a case that just don't look at Indian markets' year-to-date (YTD) surge. We are still one of the underperforming markets. Do you see more catching up going ahead and do you see the current consolidation or minor weakness as buying opportunity?A: Absolutely, I continue to believe that India has got the best future ahead in the next year or two. Of course, I have always advocated this and that is the cardinal rule for all markets that you have got to be stock specific and get you stocks right.You have tailwinds in your favour because we are in a secular bull market and if that be the case then you need to get the right stocks. I don't care whether the Nifty goes to 9,200 or goes to 8,400, we have already seen this that even when the Nifty has been underperforming we have had stocks which have gone up 5-7 times in the last 2-3 years. So, that is what the focus is going to be in the next year or two.Latha: One of your very big bets has played out beautifully, the public sector banks (PSBs) and in particular the larger better run PSBs like the State Bank of India (SBI). We have also got information today that in all probability Arundhati Bhattacharya will be continued for a year. Clearly, the investors have perceived that as very good news. Your own take on SBI in particular and the public sector pack which has worked for you?A: Irrespective of the leadership of course without any doubt that Arundhati Bhattacharya is a phenomenal leader and has done a stellar work in the bank and particularly at this time of crisis she has held fort and started out things quite boldly. However, I am a firm believer of the fact that the entire banking landscape in India has changed in the last two years. We are not going to have the same old practices of how the banks are going to lend and what kind of practices that were being adopted in the last decade or two. Every banker has become conscious about what kind of assets he has in his books, the process of lending, the process of identifying customers, the process of lending to who and I don't think those lessons will be forgotten very sooner.A lot of people turn around and say be sceptical about India, that things will be back to normal in the next two or three years it will be forgotten. But I don't think that is going to happen in the banking landscape, particularly in the public sector undertaking (PSU) landscape after what we have seen. We just saw a recent action last week by the Central Bureau of Investigation (CBI) on a former bank chairperson. So, I continue to be optimistic on the banking space and particularly PSU banks which haven't contributed to the rally. SBI continues to be a good bet but of course SBI doesn't fit into my risk to reward profile at this point of time because I don't see it 3x-5x in the next 3-5 years. I can find many more bets in the PSU space, which are cheaper and would get either consolidated or would move much higher in terms of earnings trajectory as well as asset clean up, balance sheet clean up etc.Sonia: The last time we spoke with you, you had indicated that one contrarian call you would take now, is a buy on Infosys. Since then things have gotten a bit worse for Infosys. There are expectation that the guidance could be revised further downwards. Would you rethink your contrarian view?A: No, I won't because every possible negative has been priced in Infosys right now and whatever I get speaking to industry veterans as well as understanding what Vishal Sikka has been saying I think it is built into the price. Worst case situation probably it may see another 5-8 percent dip on a bad day but I don't think anything beyond that. I can't give a trading call on Infosys, but as an investment bet I think the contrarian call remains.Anuj: Lot of companies that work at your backyard based out of Delhi NCR are doing well, auto names, Maruti Suzuki is at life high, we have seen Hero MotoCorp doing well, Escorts in the broader market. So, this whole consumption theme is playing out beautifully. Do you see more gains here or do you see valuation is a bit of a factor here maybe even Eicher Motors if you want to ad din the list?A: They have run up quite a bit but I am not denying the fact that there is a good long-term story there. So, my best case situation at this point of time would be a consolidation at the current levels with a slight pull back and aggressive pull back should be used to buy into select names like Maruti Suzuki etc. I don't see major weakness in them. Also in the short term say, in the next 3-6 months, I don't see a major up move also. So, I think a phase of consolidation that you have seen in the stocks and also I don't see a major jump in the earnings -- earnings would jump but because earnings are more or less in the price, people are factoring in consumption led demand etc, festival season and lower interest rates probably etc.So, other than that Escorts probably may excite me because construction equipments space -- any space that is providing inputs to these large infrastructure projects those look exciting. So, if you have auto story which is a mix of that that probably you may want to add even at the current levels._PAGEBREAK_Latha: I am not sure of a series of rate cuts but there is definitely opportunity for one, maybe even two, if you stretch. But is that going to be something that will guide your stock picking?A: I don't think it will guide my stock picking but my call is that as early as October 4, we may see the first 25 bps coming in because one thing that is very clear is that the rate of increase in the inflation is now moderating. Reserve Bank of India (RBI) would understand or RBI would forecast and inflation would be at manageable levels over the next six months or so and of course RBI always reserves the right to kind of reverse its stance if it thinks that things are getting out of hand.But at this point of time, it would want to give an impetus to growth, it would want to give industry a kick-start, which is picking up but not at the pace that we all want it to pick up and even RBI would understand that business in industry needs that more as a sentiment booster than anything else because a lot of business sentiment would change because of that. So, my sense is, there is a good chance there. Of course we have this uncertain Fed equation coming up on the 21, whether it is going to be a September rate hike by the US Fed or is it going to be a December that is a question.Your question on are we going to see multiple -- I don't think we are going see multiple rate cuts, the current RBI governor and the MPC is going to work in a very calibrated manner, it will keep an eye on inflation as the primary focus, as the primary variable that they all have looked at, but not forgetting that the economy has to ultimately pick up because otherwise we have our own issues to deal with respect to the balance sheet clean up etc because a lot of that is factored in that the economy would pick up.Sonia: Since you are optimistic on the financial space, want to ask you about the big initial public offering (IPO) that opens today, ICICI Prudential Life Insurance Company, the largest insurer in the private sector. Is it a no-brainer that one should invest in this IPO and what kind of returns would you expect over the next two-three years?

A: In financial markets and equity markets in particular nothing is a no-brainer but ICICI Pru's IPO is fairly priced. You would get a listing pop but returns for insurance businesses take a long time to come. So people who are expecting that for 6-12 months they will make big money in the ICICI Pru IPO. Yes, they may because of the exclusivity and the novelty value of the fact that this is the only insurance play listed here, so good amount of funds etc and a lot of people, large private clan group kind of people would take exposure to this, but I would be wary.

I would preferred some of the NBFCs to invest in than just working on a pure play concentrated insurance company because returns are much longer and the kind of cash flows etc, take a long time to come. Therefore, there won't be any spectacular returns according to me but I maybe wrong because we have been wrong so many times about these IPOs, we never expected them to list at phenomenal premium but this maybe just one of those.

Anuj: Has Yes Bank's stocks been punished enough. There was bull market greed that became the undoing of the QIP but now down 22 percent from the peak. Is it a good entry point?

A: My personal view is I wouldn't invest in Yes Bank even it fell 20 percent more because it is the upper end of the range and the extreme upper end of the range. There are better private sector banks placed there with much bigger balance sheets and much better spread in the book etc, and at Rs 1,400 I was scared who would be the QIP investors who would be investing but you have all kinds in this business and people do invest. I also make these kinds of mistakes, investing in big companies; I invested in Kingfisher and lost the fortune there, so you have all kind of market; we all make money, we may lose money.

However, as far as Yes Bank is concerned, in my opinion I have tried my level best but I cannot justify valuation of what it is right now because compared to its peers, there are many other better bets to buy out; buy ICICI Bank, it has size, it has everything in place for it but Yes Bank with Rs 50,000 crore marketcap, I would be worried.

Latha: You spoke about the NBFC stocks. Now we have so much variety in the finance space. We discussed banks at length but now you have range of small finance banks and all of them have done exceptionally well as well the NBFC space. What is your pecking order now?

A: The larger NBFCs, diversified business models belonging to deep pocket corporate houses, they fit in pretty well and some of the smaller ones which have come up now, are relatively well managed, agile players, professional managements but very selectively there, in fact if you recollect, probably a month or two back I took a call on Reliance Capital at Rs 430-440, one of the only NBFC that time that made sense to me and continues to make sense to me even at this current price after having run up 30-40 percent over the last month or two. So you get what I am saying, so something like Aditya Birla, Bajaj kind of people would have the balance sheet and the ability to raise capital like you see what happened to Indiabulls Housing, the way they managed to close their NCD issue. So an ability to get more and more capital and an ability to manage the balance sheet, diversify the risk. This whole business is all about that and small concentrated plays cause concern like we saw earlier in the microfinance, people who were Andhra based, people who were just few state based, the way they got hit so badly and investors took months to recover. So my focus would be to continue on the broad based players, buying them at the right price and the correction to take place.