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Nirav Sheth of Brics Securities expects the Sensex to trade rangebound between 15,000 and 17,000. " We believe the Sensex could evolve between 15,000 to about 17,000. This is obviously based on our static view in terms of no abnormal movements in the prices of oil."

Excerpts from CNBC-TV18’s exclusive interview with Nirav Sheth:

Q: How are you feeling about the banking space and the kind of nervousness that has come in especially for some of the private sector banks?

A: The banking space remains a very good secular story. But there are some genuine concerns in terms of what could happen in the short-term, given the worst that you are seeing in crude oil. If you try and run through some basic numbers in terms of the impact on fiscal deficit, you will need some incremental USD 70-80 million of funding that is required to be there. Suddenly, that opens a sort of a pandora because how do you start funding this kind of gaps. Eventually, you have to go back to banks in terms of higher Statutory Liquidity Ratio and therefore you start extrapolating.

Just about six months back, you are in a position where you could have presumed that you would look at SLRs coming down. Now, we will start speculating whether SLRs can actually increase because who is going to fund the fiscal deficits. There are some tactical issues as far as the banks are concerned. The fact to the matter is that no one has a clue in terms of where the run up in oil is going to end.

Q: Where do you stand on Cairn and the big run there?

A: We did some calculations and the implied valuations in Cairn tells you that you will have to assume a price of about USD 140 over the life of the reserve. To me, that is building or trying to see too much out into the future. I would hazard a guess that probably the stock is overvalued and right now it seems to be a good hedge against rising oil prices.

Q: The inflation figure comes in tomorrow. What’s keeping the markets most nervous right now between all those moving parts of inflation, currency, and crude?

A: The underlying factor, which is driving almost all of these things together, seems to be crude oil. Due to the leg up, eventually there is a tendency to filter into inflation, be it the headline inflation numbers. If you try and look at the core inflation figures, excluding maybe food and energy, then there is not a serious reason to get worried about it.

Also, the fact that credit growth has slowed down. I am not really worried as far as interest rates are concerned. This assumes a static scenario in which oil doesn’t overshoot and get into some abnormal territory. If that happens then with the lead or leg, we will have to see their problems. This time around, there seems to be a great disconnect in terms of how oil is moving and now the economies globally are performing.

Almost every country globally like China, India, US, Europe, among others is decelerating. Therefore, it seems slightly hard to explain the pace of rise in crude oil. I would also tend to believe at some point of time that it will itself start acting as a regulating factor. Probably, crude oil at some point of time will reach a price which will start chocking growth itself. We will probably be getting into an area where growth is going to slow down, and the headline inflation is going to remain strong. Those would remain headwinds for the equity markets in general going forward.

Q: What’s a range that you are working with right now for the Nifty?

A: We believe the Sensex could evolve between 15,000 to about 17,000. This is obviously based on our static view in terms of no abnormal movements in the prices of oil. We would tend to believe that earnings growth will decelerate going into the second half, which would be offset by a very strong blow up sometime into FY10. A lot of things will change if you try and look one year out. I would expect the current PE to only origin at about 15 to 16 times. Again this is based on the view that interest rates by and large would remain stable. So, we are looking at a fairly tight range going forward over the next one-year or so.

Disclosure: It is safe to assume that we have got a vested interest in the stocks or sectors discussed.

Source: Moneycontrol.com