The most important variable that the market is currently focused on is RBI rate cut, says Dipan Mehta, member BSE and NSE. Market is extremely sensitive on that count and is glued on to the interest rate movement.The Indian equity market posted good gains in the week gone by and is holding up its early gains Monday with banks being the top gainers.Governor Raghuram Rajan reluctance to ease rates further — based on poor monsoon forecast — may not hold for long as showers so far show monsoon is on track. The market is now hoping for one more rate cut, he said.So, in case interest rates go down further then banks would naturally gain. He particularly prefers private banks like IndusInd Bank, Yes Bank, Kotak Mahindra Bank, DCB Bank over public sector banks except SBI. According to him one can play the revival in the economy through banks, autos, some capital good stocks on back on increase in capex.He is not upbeat on the top rung IT names and has been negative on them for couple of months because costs for them are accelerating without increase in volume growth. However, says one can play IT through midcap names which currently seem to be outperforming the largecaps. Midcap IT companies could easily manage to maintain 15-25 percent bottomline growth and give better returns, he adds.Although realty could be beneficiaries of the cut in rates, he does not recommend entering into them.
Below is the transcript of Dipan Mehta’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Anuj: What led to this change in Indian market trajectory, the kind of move that we have seen in last three or four days and what is your call on the Bank Nifty, today it is up 400 points?
A: Our stock market is clearly focused on interest rate movements; we saw the market rise above when the Reserve Bank of India (RBI) policy was going to be announced on the expectation that there would be a 0.25 interest rate cut which actually did come through.
However, then the RBI commentary was quite bearish for the market where the Governor said that there would be no more interest rate cuts and that inflation would start moving up because of the base effect and that is when we saw the sharp correction in our market post the RBI policy. Now, with the monsoon coming back in true earnest, again we are hoping that the RBI may reconsider its stand and we may look at further interest rate cuts over the next few months or so because of a better picture as far as inflation is concerned.
So, more than any other variable in the market at this point of time given that news flow also is quite tepid, we are all tracking the various variables or the various data points which RBI will look at to perhaps reconsider and go in for a another interest rate cut. I think our markets remained extremely sensitive on that count because that is the only way we will see a fruitful or a meaningful correction or improvement in the overall economy.
Ekta: I wanted to focus on a couple of these probable M&A stocks, for example, Essar Oil has been quite volatile and down around 2 percent. There was news of a Russian oil and gas major possibly picking up stake in the company plus we have Heidelberg as well as JP Associates in focus on account of a cement unit acquisition that might take place. How much of a theme do you think M&A will be in this year in particular and which are the stocks you would play or look at from that perspective even from current levels?
A: I think selling off of assets, getting equity infusion into some of the capital intensive businesses in the power sector, petroleum sector, refining, infrastructure is extremely important because other than that I think these companies are under a lot of stress. Given that interest rates also are not coming off and the kind of mood within the banking industry is not to offer any further extensions or further funding to such companies which have a balance sheet stress, for these companies M&A activity becomes extremely important.
By and large if the rupee stabilises and globally, also there is stability as far as the Greece issue is concerned, at the same time if we are seeing revival in the economy over here then that will induce many more of these foreign players or foreign MNCs to look at M&A activity to acquire Indian assets which are available quite reasonably and that would provide a lifeline to companies that we just spoke about.
I think M&A activity is the only way out for the companies which have a distressed balance sheet position. Environment is everything, sentiment is everything even in that market so if overall the India rating improves, overall the view of India and global investors starts looking up again, you will see many more of such M&A activities and that is very important from stock market point of view also because these are underperformers and we could see revival over there.
Anuj: Within the banks, what would be your pecking order, what would be three or four key stocks that you would like to play considering that these stocks have corrected quite significantly?
A: We have said earlier also on this channel and with usual disclosures that we have investments in these stocks and so would our clients, I think the top picks remain the private sector banks over there; the likes of IndusInd Bank, Yes Bank, DCB, Kotak Mahindra Bank. I think all of them are still in a secular growth story and rightly so banks are again driving this market up because as I said earlier it is the interest rate expectations which are driving our market at this point of time.
Banks being sensitive to interest rates we are seeing that they are the counters which traders and investors are preferring at this point of time. In any case they have very large weightage in Sensex and Nifty as well. So, investors who are slightly underweight in their portfolio are looking at perhaps increasing their exposure to banks at this point of time.
I would still like to avoid the PSU banks with the exception of State Bank of India where the past couple of quarters the numbers have been beaten street expectation and maybe we are seeing the end of the road as far as further increases in NPAs are concerned. If the overall economy were to start improving and credit off-take does pick up then entire banking sector will do increasingly well for 2015-16.Disclosure: We spoke about lot of sectors and companies and it is better to assume that we have vested interest in them.
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