Probability of QE3 fairly high in view of US polls: Jagannadham Thunuguntla, SMC Global Securities

In an interview with ET Now, Jagannadham Thunuguntla, Equity Head, SMC Global Securities, gives a fundamental view on the markets. Excerpts:



ET Now: What is your sense for the benchmark indices? How big a hurdle is 5200?

Jagannadham Thunuguntla: The market got stuck in a very strong range of barely 200 points. Until and unless some action starts kicking in from, let’s say, the RBI or say QE3 from the US, I do not think the market is going to break this range. Largely it is a 4900-5200 kind of a range.

ET Now: The consensus on the street is that tomorrow’s credit policy is going to be a bit of a non-event. What is your expectation?

Jagannadham Thunuguntla: Appearing to be. Monsoon is definitely a disappointing factor this time and on top of that the rupee is weakening. So inflation should remain high. The RBI will not have the cushion to cut the rates. That will be another dampener for the overall market. Even the corporate earning season has hardly had any positive surprises. There are a few, but largely it has been very modest kind of earning season. The only game changer that may happen in the next one or two months will be the QE3.

ET Now: So there is this big expectation building up in the global markets about the possibility of a QE3 coming out or some announcement to that effect coming out from the US this week and possibly something even coming out from the ECB this week. Should that not happen, what should we expect for equities?

Jagannadham Thunuguntla: Probably then we are heading towards much-lower levels. There is a very good chance that the market will address back to 4800 and if that get broken, may be 4500 may again get retested. That risk is very much there. But considering the November US elections, somehow I feel the probability of QE3 is fairly high, may be towards the August-end or the beginning of September.

ET Now: If a QE comes?

Jagannadham Thunuguntla: If QE comes, probably then 5400 will get broken on the upside and then probably 5600-5800 is likely. Barring that I cannot expect much of a game changing event. Of course policy action, if it starts from the Indian government, that is a different thing. But the probability of that appears to be less. Now it all boils down to QE3.

ET Now: What is your stock-picking strategy? Which stocks would you look for?

Jagannadham Thunuguntla: Banking is one pocket which is appearing very convincing because valuations are in the range of 4 to 6 PE multiple in case of many midcap PSU banks and 0.4-0.5 price to book. NPA figures are definitely there, but I feel that most of them have already been factored in. If somebody gets into midcap PSU banks with two to three-year view at this point should not get disappointed.

ET Now: Would you argue that some of the private sector bank stocks are a little overvalued at current levels?

Jagannadham Thunuguntla: Absolutely. In comparison to the PSU banks, the private sector is appearing to be a bit higher valued. Having said that, some of these smaller-size banks -- let’s say City Union Bank and banks like IndusInd Bank, probably even Yes Bank to that extent -- probably the valuation is still under control and large-sized private sector banks are appearing to be a bit higher valued.

ET Now: Finally from the midcap space are there any stocks that you would look to buy?

Jagannadham Thunuguntla: Midcap IT is appearing to be interesting. The large cap IT is finding it so difficult to maintain the growth momentum and the midcap IT is continuously surprising on the positive side - be it Hexaware or KPIT Cummins. Definitely it is interesting because margins are under control as well as the order book is picking up quite good. Hexaware, KPIT Cummins as well as MindTree seem worth to look at.