Expect public sector banks to underperform private peers: Phani Sekhar, Angel Broking

In an interview with ET Now, Phani Sekhar, Fund Manager-PMS, Angel Broking, talks about the market, banking stocks and how an increase in diesel and LPG prices will impact the economy. Excerpts:

ET Now: Do you see global events dwarfing local action?

Phani Sekhar: That is bound to happen because there was a change in the local sentiment. However, if we carefully analyse the speech of the new governor, he is not straying from the path of inflation targeting, nor can he afford to do so. Come 18th September, we will have taper talk all around the globe and beyond that, we will have the structural problems which are not going anywhere in a hurry.

Therefore, a combination of an oversold market, especially the banking sector, has led to a smart pullback. Over a period of time and within the next 15 days and beyond, the fundamental factors will come back. The last word on the currency is not out yet and one needs to be watchful on this front.

ET Now: How do you look at the big move in the banking stocks? Do you think this move is factoring in too much because the moment we move into the earnings season, the skeletons will start coming out of the closet once again?

Phani Sekhar: That is right and one also must remember that they have also fallen the hardest in the last three years. Therefore, one had expected a smart recovery. Banking stocks had fallen on concerns of poor asset quality due to depressing micro environment.

As long as that situation persists, banks over a period of time can't have a respite. Some of the stocks like Axis Bank or ICICI Bank were oversold in the past week and we have seen a smart pullback. However, public sector banks will still underperform their private peers.

ET Now: Some reports seem to suggest that there is a diesel price hike of as much as Rs 3 a litre in the offing once the monsoon session winds up. How do you suppose traders should play the OMC pack?

Phani Sekhar: Diesel price hike is imminent and what will come as a pleasant surprise to the market are the talks of a kerosene price hike along with an LPG price hike. Diesel price hike of Rs 3-5 was more or less factored in yesterday's rally in ONGC especially. OMCs will not get impacted beyond a point with the fuel price adjustment because most of the impact will be taken by OMCs if the fuel readjustments do not happen.

This is because 45% subsidy is the maximum that the street is used to, but the concerns are that the subsidy burden might increase closer to 50-60%. ONGC and Oil India should be watched more closely on the fuel price hike rather than oil marketing companies.