ET Now: Manish Sonthalia believes that 7000 is going to be the floor for the Nifty for the next three months, if the exit poll predictions are right. What sense do you get -- is that being too over aggressive or do you think it is now time to trade with caution?
Saurabh Mukherjea: We have articulated a target of 24,000 for the Sensex. We articulated that target six months ago. The Sensex seems to be approaching 24,000. I reckon by this time next week, we will probably be going through 24,000. Once we go through 7500-odd on the Nifty and around 24,500 on the Sensex, that is when I will start getting cautious.
Currently, I do not think there is any ground for worrying about the overall level of the market. I do not think it is worthwhile worrying about the overall current level. It is not as if valuations are particularly challenging, neither is it the case that the bulk of FII flows or the domestic flows are behind us. I do not think the overall debate should be about the level of the market. That does look likely to rise by another 6-7% quite comfortably over the next month or so. The question is what are the stocks or places one should buy in the context of a fairly euphoric market or fairly optimistic market.
ET Now: The last leg of the rally has really been banking-driven and banking stocks have really been the leaders so far. When we had talked in April, you were not all that gung-ho about banks. Did you buy into the banking pack eventually?
Saurabh Mukherjea: No. I do not think there is anything preordained which says banks will do well after elections. We have had elections in the past where banks have struggled. Exactly 10 years ago banks struggled after the elections and there will be a repeat this time. The economy would be slow to recover. Banks' asset quality drag will take a long time to resolve and the banks will find it hard to get deposits. I would strongly urge investors to think about taking profits in banking stocks such as Kotak Bank, HDFC Bank, etc.
They are superb banks, but valuations are punchy and banks will struggle. If investors do want to buy banking, I would urge them to have a look at the three large PSUs — BOB, PNB and SBI. But private sector banks by and large, and the top ones especially, look overvalued to us. We have been light on banking for the last year. It has worked out nicely for our clients. There is nothing in the law, there is nothing in the stock market investing law which says that banks have to do well after elections and I am pretty confident that even after this election you will see banks underperform.
ET Now: How the ride for the entire year is going to be, and in the near term do you think the markets are going to pay too much heed to what the exit polls are indicating?
Saurabh Mukherjea: You can gradually see the exit polls getting factored in over the course of the day. We saw a little bit of it on Friday and yesterday. By and large, I reckon the market will be roughly one percent, or a couple of percents up today. Most large investors know that exit polls need to be taken with a pinch of salt, especially if they pertain to the BJP's seat count.
We have seen that systematically in the last three elections — 1999, 2004 and 2009 — that exit polls do have a tendency to overestimate the BJP seat count. So, most investors will take a hair cut on whatever number the exit polls are giving for the NDA. But it does look like that NDA is likely to form a government and that is being factored in by the market. However, most investors are waiting for the big news on May 16. There is a degree of scepticism about the quality of exit polls in our country, and hence the bulk of the movement will still be focussed on the result day.
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