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The rally would be short-lived: Gajendra Nagpal

Abhishek Vasudev/New Delhi 08 Sep 12 | 09:46 AM

With the European Central Bank planning to undertake an aggressive bond-buying program to help struggling euro-zone countries, Gajendra Nagpal, founder and CEO, Unicon Investment Solutions tells Abhishek Vasudev that the euphoria in the markets is likely be short-lived. Edited excerpts:

What is your reaction the statements from the European Central Bank (ECB)? Do you think that the rally in equities across the globe will be short-lived? Why / why not?

Mario Draghi, reiterated his pledge to do "whatever it takes" to preserve the euro and said the ECB is prepared to make outright monetary transactions (OMTs), in the secondary market for euro-area government bonds.

The markets have rallied on the back of stronger-than-expected job market data and the ECB statements. However, it remains to be seen whether this can last. The rally could be short-lived as this is a temporary solution. We need to see how much of it is implemented.

Which stocks and sectors in the large-cap universe are you bullish on from a medium-term perspective in the Indian context?

I am bullish on the media, FMCG, fertiliser, consumer durable, pharma and mid-cap information technology (IT) spaces. In the large-cap space, Reliance Industries, Ranbaxy and Wipro are good buys.

The banking stocks witnessed a sell off on concerns pertaining to their asset quality. What is your outlook on the banking space?

Short term volatility will persist as the September quarter will also have higher non-performing assets (NPAs). However, the RBI would have to go for a rate cut within the next three – four months if not in the ensuing policy.

Banking stocks are available at a compelling valuation. The improvement in the economy would itself address the NPA concern. One can buy these stocks at every decline for medium-to-long term perspective.

The metal stocks have also been witnessing the selling pressure since a long time now. Do you expect this sector to outperform going ahead? What is your outlook for the commodity space in general?

A dramatic price fall in Chinese steel and raw material sector was witnessed due to over production coupled with weaker than expected demand. This percolated in the global space where capacity utilizations have come down to 80% and most of the market witnessed lower commodity prices.

Additionally, concerns on Europe’s political and economic situation and regulatory issues in the domestic front created a negative sentiment. Precious metals received a boost from the ECB’s announcement of new bond purchases on Thursday, with gold back above $1,700/oz and silver climbing 2.4% to $32.9/oz.

Base metals were relatively unmoved, this sector may consolidate at these levels till the regulatory issues are fully addressed and then it may take a u-turn. Demand for steel would be buoyant but not in double digits but around 6 to 7% in the next year or two. The policy bottlenecks and high interest rates are acting as deterrent to the growth. The auto sector, one of the major user industries, has also slowed down. The sector would be a market performer in the next two years.

Gold is hitting new highs. What is your outlook on the yellow metal? Where do you see the rupee headed in the near-to-medium term?

Gold can move up to Rs 35,000 with the uncertainty continuing in the global economy. It is considered a safe-haven as compared to any other instruments in the volatile economic conditions. The forthcoming festive season would keep the price of the metal firm. We are positive on Gold for the next six months.

Rupee could hover around these levels in absence of fiscal measure and in worst scenario could move down to 57. However, if some tangible measures are taken then it could move up to 53 levels in the medium term.

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