Valuations of private sector banks are now slightly getting stretched even though there isn’t a doubt that these institutions have better-managed balance sheets than their public sector counterparts, says Sandeep Bhatia, executive director & head of sales, Kotak Institutional Equities, in an interview to CNBC-TV18. He advised investors to have no exposure to PSU banks.

Speaking on market, Bhatia said the current flow of liquidity from the US will tend to slowdown in the next two years although it will be in abundance in Europe and Japan and India can enjoy some of the benevolence coming from Japan.

Maintaining that both market and outperforming stocks are capped by valuations, Bhatia said there are not many investors on the street who would place their bets on cheaper stocks. He is doubtful of an improvement in India’s macro situation but remains bullish on the pharma sector .

Below is the verbatim transcript of his interview on CNBC-TV18

Q: What is the mood on banking right now because this quarter has been so disparate in terms of earnings good earnings from private sector but not so good from public sector banks?

A: Yes that is true. The balance sheets of the public sector are showing signs of strain. Our belief is that if the economy does not improve in the next 18 months there would be further strain on the balance sheets of the public sector banks.

The private sector banks have carved themselves a very good niche. They are focused on the retail side of the asset much more. Their balance sheet management and working processes are much more stringent. So, clearly we see less stress on the balance sheets there but valuations are getting stretched on the private sector banks. This differentiation between private sector and public sector will run for some more time but it will be clearly stretched valuation for private sector banks which have to be watched for.

Q: How are you mapping the whole infra space now, which is connected to the banking world very closely. Are you seeing any signs of recovery because company earnings have been quite weak almost without exception over the last four-five days?

A: For a long time we have been saying that we do not see a quick recovery in infrastructure space. Their balance sheets are stretched, execution is still not happening, so clearly there are issues which will not go away soon. There needs to be a significant change in policy confidence, which is not going to come in a hurry. Therefore, the public sector banks will bear the brunt of this and which is why the markets have been differentiating between public sector and private sector banks.

There doesn’t seem to be a quick way out of the woods for infrastructure, and the public sector banks exposure to these companies.

MUMBAI: Markets have corrected sharply on concerns about a halt in quantitative easing in the US, which spooked investors. China's flash HSBC Purchasing Managers' Index for May, which fell to 49.6, for the first since October also led to a global sell-off.

Reacting to the meltdown in global equities, Finance Minister P Chidambaram said that the US Federal Reserve Chairman's statement has been misunderstood by the market. He said that foreign inflows into India in May have been copious and there is no need for investors to be nervous.

According to him, WPI inflation has come down below 5 per cent and investors should look forward to next quarter with greater confidence.

According to analysts, the current correction in Indian markets is on account of profit booking after the recent sharp rally and bearish sentiment in global markets. Fundamentally, there is no strong reason why the investors would exit the Indian equities at a time when the interest rates are expected to go down. They don't expect heavy outflows from the FIIs but some moderation in inflows is not ruled out if the US markets continue to move higher.

"This fall is like a blessing as we feel the Nifty will bottom out by roughly correcting 1-1.5 per cent and then stage a rally all the way to 6,400-6,500 in next 5 - 6 months. Best sectors to go long at the time of recovery would be banks, metals, capital goods and cement," said Manoj Muralidharan, AVP- Derivatives, IIFL PReMIA.

At 01:40 p.m., the S&P BSE Sensex was at 19,753.12, down 309.12 points or 1.54 per cent. It touched an intraday low of 19,697.44 and a high of 20,027.56.

The S&P BSE Midcap Index was down 1.85 per cent and the S&P BSE Smallcap Index fell 1.90 per cent.

Standard & Poor's reiterated its negative rating outlook on India's credit rating, which is one notch above junk status, warning of risks if the government carries out less reform than the agency says is needed to boost growth.

The rating agency, which warned of at least a one-in-three chance of a downgrade within the next 12 months, said the major risks for a lower rating are a high fiscal deficit and heavy government borrowing.

India's benchmark 10-year yield rose 4 basis points to 7.41 percent from levels before the statement. The yield closed at 7.39 percent on Thursday.

"If India's general government fiscal or current account deficits worsen contrary to our expectations, we may lower the ratings," S&P said in a release on Friday, after affirming India's BBB- rating with a negative outlook.

Finance Minister P Chidambaram has said he will stick to a budgeted fiscal deficit target of 4.8 percent of GDP in the fiscal year ending March 2014 after being able to restrict the deficit to around 5 percent in the previous fiscal year.

"We may revise the outlook to stable if the government carries through with its plans to unleash public and private investments (for example, by enacting the land acquisition bill), to implement a nationwide government sales tax, or to further trim fuel and fertilizer subsidies," S&P said.

India's growth slipped to a decade low of 5 percent in the fiscal year that ended in March 2013 after posting nearly double digit growth in 2008. Recent corruption scandals have prevented the government from passing key reform bills in the parliament.

NEW DELHI: Indian markets are likely to trade in a range with a positive bias on Wednesday. The immediate support level for Nifty is around 5981.

"The Nifty is expected to head higher till 6080. In this period the key support will be at around 5981 and resistance will be at 6050," said Somil Mehta, Senior Tech Analyst (Equity) at Sharekhan.

"The Nifty has closed above the 78.6% retracement level (5971; that is the 78.6% retracement of the fall from 6111 to 5477), which was a very crucial resistance," he added.

Mehta is of the view that the short term bias for the Nifty remains positive for a target of 6111 with reversal around 5925. The medium-term outlook also remains positive with reversal around the 20-daily moving average (DMA).

Here is a list of thirteen stocks which are likely to remain in focus in morning trade:

HDFC Ltd will be in focus ahead of its quarterly results. It is expected to report net profit of Rs 1515 cr for the quarter ended March 2013 up 14.2 per cent YoY, as compared to Rs 1326.10 crore reported in the year ago period, according to ET Now estimates.

Glenmark Pharmaceuticals Ltd BSE 1.80 %, after the company posted 10.93 per cent rise in consolidated net profit at Rs 166.79 crore for the fourth quarter ended March 31, 2013, on the back of robust sales in both international and domestic markets.

Shriram Transport Finance Ltd, after the non-banking finance company reported a 16.63 per cent rise in consolidated net profit at Rs 383.46 crore for the fourth quarter ended March 31, 2013, driven by a sound rise in loan growth.

Ceat Ltd BSE 4.93 %, after the tyre maker reported 32.83 per cent increase in consolidated net profit at Rs 64.90 crore for the fourth quarter ended March 31, 2013.

Ranbaxy Laboratories Ltd will be in focus ahead of its quarterly results. The pharma major is expected to report a net profit of Rs 163 cr for the quarter ended March 2013, as compared to Rs 1247 cr reported in the year ago period.

Reliance Industries Ltd, after the government has asked for certain clarifications from RILBSE 0.10 % on the revised investment plan the company had submitted for the main gas producing fields in the eastern offshore KG-D6 block.

NMDC Ltd BSE 0.15 %, after state-owned company is now examining two proposals for acquiring coal mines in the African country.

Infosys Ltd, after country's second largest software firm, said it has partnered with enterprise solutions provider SAP for developing mobile applications for the retail industry.

Wipro Ltd BSE 0.26 %, after the software exporter said it is investing $ 30 million for a minority stake in New Jersey headquartered big data analytics firm, Opera Solutions.

GlaxoSmithKline Pharmaceuticals BSE 1.75 %, after the pharma major reported a 37.52 per cent rise in its net profit to Rs 169.01 crore for the first quarter ended March 31, 2013 from the same period previous fiscal.

Axis Bank Ltd BSE -0.58 %, after the private sector lender will replace state-run Bank of India (BoI) as the trustee bank for the National Pension System (NPS) from July onwards.

UCO Bank BSE -4.08 %, after the bank reported nearly 80 per cent slide in its net profit figure to Rs 50 crore for the quarter ended March 31, 2013. Provisioning increased by 114 per cent to Rs 977 crore (Rs 456 crore).

Dewan Housing Finance Ltd (DHFL), after the company recorded over two-fold jump in net profit at Rs 196.93 crore for the fourth quarter ended 31 March 2013.

NEW YORK: US stocks traded mostly higher on Tuesday, paring initial losses, as home prices and consumer data offset a decline in regional business activity.

Technology stocks led the gainers in the S&P 500, which closed at a record high on Monday. The benchmark index was on track to post its sixth consecutive month of gains.

Apple shares rose 2.3 per cent to $438.83 to lead the S&P 500 slightly higher. The iPhone maker came to market with what could turn out to be the largest non-bank bond sale in history, as it seeks funding to return cash to shareholders.

On the economic front, US home prices rose in February at their fastest rate in almost seven years while consumer confidence rebounded in April. However, business activity in the US Midwest unexpectedly contracted in April to its lowest level since September 2009.

Any pullback in the market has been viewed as a buying opportunity, traders and analysts said.

"The consumer confidence data seemed to mark the lows in the market," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

"The continued market strength is drawing people reluctantly off the sidelines and into equities. Whether you want to buy stocks or not, the strength is forcing your hand."

The Dow Jones industrial average fell 10.12 points or 0.07 per cent, to 14,808.63. The S&P 500 gained 1.04 points or 0.07 per cent, to 1,594.65. The Nasdaq Composite added 14.8 points or 0.45 per cent, to 3,321.82. Equities continue to draw support from expectations that central banks will maintain low interest rates and other economic stimulus measures. A statement from the Federal Reserve due Wednesday is expected to keep in place the central bank's pace of bond buying to stimulate the economy.

The European Central Bank will meet on Thursday. A Reuters poll of economists showed policymakers are expected to cut interest rates.

The S&P 500 ended at an all-time high on Monday as growth-oriented stocks, including energy and technology shares, drove the index's sixth rise in the past seven sessions.

A positive finish to April would deliver a sixth straight month of gains. That would be the longest winning streak since September 2009, when the S&P 500 rallied for seven straight months. The broad market index is up 1.6 per cent for the month.

"Short interest is rising, but the market continues to move higher. If the S&P were to break over 1,600, we could see a monster short squeeze," said Jim Brown, editor of options analytics firm optioninvestor.com, in a note late on Monday.

Pfizer shares weighed on the Dow industrials after the drug maker posted lower-than-expected quarterly earnings and revenue, and trimmed its full-year profit outlook. Its stock fell 3.3 per cent to $29.42.

US retailer Best Buy retreated from its ill-fated European expansion by selling its stake in a joint venture to Carphone Warehouse Group for less than half what it paid five years ago. Best Buy shares jumped 8 per cent to $26.14.

Shares of security software maker Symantec Corp dropped 10 per cent in a span of a few seconds before trading was halted. Equity traders called the move another single-stock "flash crash," in reference to the May 2010 selloff when the Dow fall more than 600 points in a matter of minutes. Symantec was down 1.2 per cent at $24.30 at midday.

Well, at the cost of not appearing like a soothsayer, why you want to predict and take money off before the market kicks you out? Always have a point in the market where you will decide that the trend is now over and that point needs to be updated on a daily basis. Today, that point is 5850.

In case tomorrow, 5850 is taken out, you exit your longs and the story is over. In case we get up to 6000, your stop moves higher to may be towards 5920-5950. So, keep updating yourself because nobody can say from where exactly the market will turn.

You sell today and the market goes up 200 points, but there is a regret, so it is better to just keep trailing the market. It is a strong market, hence trailing your stop does make sense.

You would not like to trail in a weak sideways kind of choppy market, but in a trending market, the view has to be that we try to push the trend as far as possible.

Here are four stocks to track in volatile markets:

Motherson Sumi Ltd: The big trend identified by experts is decline in commodity prices, and investors can look at stocks which will get benefited because of softening commodities.

Motherson Sumi is one such stock which matches the criteria. Along with that, there are multiple factors which are in its favour.

Its global subsidiary SMR is turning around and the management is confident that despite a visible slowdown, demand from some of their top clients, which include names like Volkswagen, Audi and Mercedes, will remain intact.

Management is also confident that at a global level, things will improve.

"The company is confident about achieving its 40% ROCE target and exceed $5bn revenue target for FY15. Domestic business has seen strong growth of over 25 per cent despite lack of car sales growth," BofA-ML said in a report.

"Improvement in margin and ROCE of overseas subsidiaries like SMR and SMP is on track. The loss making Brazil unit is a concern and may take six months to improve," added the note.

Global investment bank Espirito Santo reiterates its 'BUY' rating on the stock with a target price of Rs 276
.
Jubilant Foodworks Ltd:

Analysts say it's a great franchise and Dominos Pizza is a household name but in the near term, it appears that the stock has hit some kind of a wall. Jubilant Foodworks is a great brand. However, what is not growing for the company is the same store sales.

Same store sales for Jubilant Foodworks are not growing and the Dunkin' Donuts franchise's operating profit margins in the near term will remain under pressure.

Most of the stores currently owned by Jubilant Foodworks are due for renewals, which means operating profit margins for FY14 will be under intense pressure.

Jubilant Foodworks has not been a great wealth creator this year. Most of the brokerages, except CLSA and Deutsche Bank, are now finding little merit in advising their clients to buy Jubilant Foodworks.

Deutsche Bank maintains a 'buy' rating on Jubilant FoodWorks and has also upped the price target from Rs 1260 earlier to Rs 1300.

The brokerage see 4 key drivers of stock price in the short term - guidance on same store sales growth, new stores addition, cash utilization and lastly guidance on losses from Dunkin Donuts business.

CESC:
Calcutta Electric Supply Corporation has plunged over 10 per cent so far in the year 2013 but analysts see silver lining in the fall and expect it to bounce back in near term.

According to analysts, electricity tariffs have been hiked in Kolkata in last quarter and the effect of that will be visible in the balance sheet of CESC in the coming quarters.

CESC is also the parent company and holds majority stake in the retail chain Spencer. At a time when retail sales were subdued, Spencer bucked the trend, whereas it's larger peers Pantaloon and Shoppers Stop reported a de-growth in their same store footfalls.

The management has indicated that if not in FY14, maybe by beginning of FY15 they may seriously consider de-merging the retail arm and the electricity arm.

The company is also mulling to take Spencer public. The management sounds confident of achieving their FY13 guidance.

Experts say valuations for CESC are mouth wateringly attractive and the stock is not trading at sub-book levels. So for a company of that pedigree and for a franchise of that quality, if the stock is available below book, it is a good time to buy.

United Phosphorus Ltd:

This is one stock which has disappointed lot of fund mangers and long term investors. However, if we look at the business dynamics, there is a case for changing fortunes for the stock.

Cash flow from Brazil will improve and the company has a very strong focus on emerging markets. However, what might pose a problem for United Phosphorous is its strong ownership pattern.

Most of local and global mutual funds have a large exposure to United Phosphorus. So if the stock appreciates to Rs 130-135 in the short term, we may see some profit booking.

If the business dynamics change, such as appreciation in currency or good monsoon, there is a strong case that it might just bounce back.