Sensex yr-end target 26900; cherry-pick pvt banks too: HSBC

Also read: India safe bet but not keen on pharma, Maruti: Samir Arora

He has a Sensex target of 26900 for the year-end.

Below is the verbatim transcript of Jitendra Sriram's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: How deep is this global deflation scare? Do you think it can hit the equities yet again and take us below 8,000?

A: The pressures on deflation remain very real because both sides whether it's the hard commodities like the metal pack and also the soft commodities like the agricultural prices, both trade at multi year lows now. Therefore, to that extent I would argue that the threat of deflation kicking in is there.

To add, the whole issue about the recent data coming out of China like the Purchasing Managers’ Index (PMI) data etc not matching up to investor expectation and as a result of that I would expect that this big growth engine for the world which has been China thus far might cause some kind of growth scares as well. I think it's a possibility that you could see market drift down from here. Our yearend target, as I mentioned earlier, is close to about 26,900, so it implies an absolute downside from these levels.

Sonia: The India dedicated funds have been pulling out money in the last couple of weeks. Do you see that trend continue?

A: India dedicated portfolio is totally going to linked to the inflows and outflows you see from a global sentiment perspective because they are effectively wedded to the market. So it is not about shuffling the decks in terms of which country to allocate more or less. Therefore, I would say that the bigger determinant there would be stuff like if and when the US does decide to hike rates you could see some flight of capital away from the emerging markets back into the US and as a result you might have those implications fallen.

However, when I look at Asia ex-Japan pack, the Asia emerging market (EM) pack, I would argue that there you could see short-term, probably a small lift up because people might shuffle a little bit out of the other markets into India given the relative resilience of this market but longer term China growth scares will be the bigger factor to weigh on this entire pack as such.

Latha: What about the banks. I remember you saying that you are positive on some of the housing lenders and you had ICICI Bank also as a buy on your list. Lately the bad loan problem is troubling even the private sector banks. Where do you stand on ICICI, Axis Bank?

 A: In the private sector our top names which is part of our Asia Super Ten is HDFC Bank which is a lot about pristine asset quality because as you rightly put it asset quality remains a concern for most banks and the fact is the longer that recovery is allusive, I guess the cancer will spread. It is already extremely evident in the state owned banks at this point of time. My suspicion is if you have few more quarters, some part of it will spill over to the private banks. You could be very smart in lending practices; you could be great in appraisals and stuff but the endemic problem of the sector will reflect eventually. So it will spill over. Therefore, I would suspect that one needs to be fairly selective even in the private banks, so either it has to be something where asset quality is very comfortable which could be names like HDFC Bank or Kotak Mahindra Bank or mortgage lender like HDFC or alternatively it has to have the support of valuations wherein we like name like ICICI Bank or Yes Bank, but by and large I would say that one needs to be very selective in the private bank space as well now.

Sonia: You have liked whole agrochemical sector for a while and there we have seen substantial gains in names like UPL etc. What incremental trigger do you see over there and what are your top picks in that space?

 A: Most of the sector is definitely looking very appealing, not only are you seeing expansion of the quantity of crops that are coming through from various companies like they are expanding beyond cotton to maize or certain other cash crops in the market place. The second part which is happening is that you are also seeing geographical expansion in terms of states. So there is lot more states who are more amenable to having hybrid seeds and stuff being planted and so on. So that is leading to the growth profile coming in. So by and large I would argue that most of the names look appealing but in terms of relative pecking order UPL is one name that we like. We also like PI Industries on the back of this. So these would be some of the names that are preferred over the basic pack.

Latha: How are you placed in the pharmaceutical space? Some big boys have taken a beating like Sun Pharmaceutical Industries and Lupin?

 A: A case of being selective there because although I must confess that some part of what is happening in the market place as a result of FDA violations or 483 observation stuff is very difficult to predict and it is shooting in the dark but I would say that Sun given the kind of price carnage that it has seen, we are constructive on that name. Cipla is another name that appeals to us, Torrent Pharmaceuticals is another name that is looking appealing because you already seen the pain last year with relation to the acquisition of Elder Pharmaceuticals\\' products slate and we are now seeing operating leverage levers starting to play out as they are able to raise utilisation levels on the acquired portfolio plus there is a trigger coming through from the generic drug abilify