Global cues will continue to drive markets, and given the risks are not fully known, a fresh high for the market looks improbable, told Pramod Gubbi, Head of Equities at Ambit Capital, in an interview with Zee Business. Edited excerpts: 

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1) The Reserve Bank of India (RBI) and US Federal Reserve have indicated hiking interest rates in their minutes of meetings. Do you believe these rate hikes could be faster than expected, and the fight on inflation severer? If yes, has the market priced that in?

I don't think market has priced that in. The cost of capital has gone up, and not just in domestic, but also global market. Market is yet to digest that comepetely. The implications are severe and to some extent not fully known. Leave aside the rate hikes, we have yet to see the impact of unwinding of Fed balancesheet. If that money goes out, it will have implications on emerging markets. Will it happen during this year? It is a big unknown. That is why I say the risks are not fully factored in.  

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2) Where would we see the hardest fall? Again banks? They are anyway out of flavour.

Fundamentally speaking, banks typically perform well in rising rate environment. Given the mangement and regulation challenges in PSU banks, private banks look strong. Even if valuations become attractive for PSU banks, these challeneges will remain an overhang. Therefore, we prefer private banks with strong CASA. 

3) If indeed RBI hikes interest rates, what would happen to rate-sensitive stocks such as auto, real estate and NBFCs? 

Financiers, real estate and auto will have an impact. Within automobile, there are different levels of penetration of finance. For example, two-wheeler segment has failry low level of penetration as comared to paseenger vehicle. So, the different segments will have varied degree of implications. There are other factors playing into each of these segments too. Commercial vehicle space has a whole new boost coming in from green initiative, and other policy perspectives. A pick-up in industry cycle will also help. Besides, if the goverment goes for fiscal expansion in the run up to elections, it will give a fillip to two-wheelers.

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Financiers, heavily reliant on wholesale market funding, will face the biggest hit. That said, I have a negative outlook on NBFCs.  

4) Do you expect Sensex, Nifty to surpass their lifetime highs in 2018?

I don't think so. I believe the market high for 2018 is well behind us given the global headwinds. Global cues will continue to drive Indian market. If US treasury yields go beyond 3 per cent, you can assume a strong pullback from emerging markets.That said, the top for this year is well behind us.