Mkt has climbed 'wall of worry'; rally to continue: Quantum Sec

Indian stocks have "climbed the wall of worry" over the past few weeks, overcoming nervousness over demonetisation impact, RBI policy and the political situation, says Sanjay Dutt of Quantum Securities.In an interview with CNBC-TV18, he said numbers on the economy have turned out to be fairly okay. "It means economy is quite resilient and was able to absorb this shock of demonetisation,” he said.Dutt added that the "smart money" had been left out from the Nifty run to 8,300 to 8,800 and so, the rally may continue."People are actually looking for good ideas to put money in. I think this positive phase will continue," he said.He also spoke about the recovery seen in bank stocks, how the rollout of GST will impact various business and what his view was on the ongoing Infosys saga.Below is the verbatim transcript of Sanjay Dutt’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Anuj: Your bullishness on the market has played out over the last one year. Are you still bullish or has the price action now made you a bit circumspect especially the way some of the midcaps have ran up?A: I think, markets have climbed every wall of worry whether it is the politics, whether it is the surprising stance taken by Reserve Bank of India (RBI) Governor in the policy. I was very surprised on the neutral stance that they took this time. I really don’t know what has made them take that stance so early in this stage. Actually, the reason being that everyone has left out, no one expected corporate numbers for this quarter to be as decent as they have been.We were expecting really bad numbers. Numbers have turned out to be fairly okay; means economy is quite resilient; was able to absorb this shock of demonetisation. So, it is a mix of all these things. Of course, the phenomenal liquidity that comes into the banking system because of current account saving account (CASA) and all other things that has kind of outperformed, that has kind of really surprised all of us.Quite a few of smart money has been completely left out in that 8,300 to that 8,800 move that we have had. So, markets are now consolidating, building all those gains. People are actually looking for good ideas to put money in. I think this positive phase will continue.Latha: What saved the day for the banking sector especially the corporate banks was the inordinate amount of money that they made in the non-interest income in their bond portfolio that is now almost wiped out, so now what would be your stand on corporate banks?A: I continue to be optimistic on them, because the kind of liquidity they are flush with at this point of time and more so I think after having seen the surprise that was delivered even after demonetisation I think credit growth will pick up. Private sector capital formation will start to pick up with the quarters ahead which obviously means that offtakes from banks will start to pick up. I have seen a very clear specific trend in lending by the banks right now. They are shifting quite a bit of focus from corporate balance sheets to individual balance sheets to really demystify that meaning they are moving a lot to consumer lending whether it is loan against property (LAP), housing loans and consumer loans. So, they are trying to move in a more deleveraged strategy and moving a portfolio which is kind of getting a little more skewed towards actual consumer finance.As one sees it happening the world over in most cases, so you would see this kind of shift over the next four to five years and that is a reason why we have seen the run-up in the NBFCs, mortgage lenders over the last year or two and what we will see now again in the banks also. Not that corporate lending will stop, corporate lending will carry on, but the reliance on corporate lending what was the main stay for the banks would now start to shift to slowly to actually consumer balance sheets, kind of diversifying the risk. So, I am quite optimistic on State Bank of India, ICICI Bank because they are strategically following a new path by design over the last year or two and this would further gather steam as we move ahead.Sonia: Are we getting over optimistic about the demonetisation impact? I mean a lot of people are telling us that this quarter there could have been a lot of window dressing especially by consumption companies, wouldn’t you want to wait a couple of more quarters before writing off the demonetisation impact entirely?A: That would be kind of a rare view kind of a situation for me because I think demonetisation impact we haven’t really figured out as to what it is going to be because the way everything is turning to the organised sector. Particularly, the combination of remonetisation along with goods and service tax (GST) this combinations will be good for equity markets because the amount of business that is going to move to organised players because of these two things where a phenomenal lot of cash that will be lying with domestic consumers at home is gone in to the banking system and along with GST which kinds of plugs in the leakage that is there primarily in the small sector and the MSME sector it is a bigger player, the bigger listed player both in durable and non-durables, staples everything else they are the ones who are going to benefit the most out of GST and demonetisation impact. So, I don’t think, we are really kind of ahead of the curve and saying be too optimistic and saying that it is going to be really good. I think market is factoring that in slowly. Latha: How would you play that theme? Just a little while ago one of our experts was saying he would play VIP, things which have traditionally got unbranded competition. so will you also give us some stocks for that theme?A: I continue to be optimistic on cement and steel which I have been optimistic for year and a half and that bet is playing out reasonably okay. A large amount of unorganised sector was eating into the margin of the bigger players because you had all kind of manufacturers - suppliers who were evading tax and duties. So, a combination of GST along with full kind of bill purchase, all about payments is really going to benefit these people. Also some of the organised players in the FMCG areas also, but my primary focus would be cement, steel and these kinds of inputs which the contractor-consumer category, building materials they normally used to go to the unorganised sector to avoid that bill, so that effect is going to go away and the biggest beneficiaries of that are going to be listed companies, the bigger players.So, my primary theme would be building materials, cement, steel which I think would be the biggest beneficiaries and more so because steel and cement capacities they are not going to come up for anything in the next five years. You throw any amount of money in next five to ten years you will not be able to set up a capacity of what the Jindal Group has or what TISCO has. Mainly, because of the environmental, land, so many clearances that you need. Also funding, no bank is going to fund anyone for the next two to three years because they are still dealing with what they had in the past. So, these two are now going to be the biggest beneficiaries of the infrastructure rollout, the consumption boom that is going to come in there when rural income and rural spends go up.For entire interview, watch accompanying videos.