Drop of 8% in SBI will see buying opportunity: Religare Cap

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Tarun Kataria of Religare Capital Markets tells CNBC-TV18, the rally that the Indian market has seen so far in 2012 shows that the investors mood is clearly different from last year. He expects FII's to continue pouring in money into emerging markets as they remain under invested.

Looking at the demographics of Europe, he says Greece is not yet out of the woods. "While in the near-term we might have a bit of settlement with Greece, Europe will still remain an issue," he adds.

A stock like State Bank of India which fell almost 8% can be viewed as a good buying opportunity, according to Kataria.

Below is an edited transcript. Watch the accompanying video for more.

Q: What is the mood that you sense at your gathering on how foreign investors are approaching the market, especially, given how sizable the rally has been already?

A: The mood is clearly very different than what we had this time last year. It a little bit more optimistic. The other thing that we are sensing is many of the FIIs have actually missed this rally. We've had a 25% odd rally since the start of the year which most FIIs apparently have missed. For example, today SBI's dropped 7-8-9%, I think they are looking for windows like that to come into the market. So, there is a lot of money still sitting on the sidelines. I expect this to continue in the days ahead.

Q: How are you reading the developments in Greece? Do you think the worst is over in terms of newsflow from Europe?

A: It would be somewhat naive to think that if there is a settlement with Greece in the next few days that's the end of Europe's problems. I don't believe so. Europe has massive structural problems. It's generally in a structural decline.

The demographics of Europe are extremely poor; the work ethic of Europe is extremely poor. A lot of these things would suggest that the European issue continues for a while. So while in the near-term we might have a bit of settlement with Greece, does that mean that over the next two to three years, Greece will actually deliver on its promises?

It is very hard to do. Europe will remain an issue in the near-term. Massive volatility probably comes off a little bit. The good news in all of this obviously is that India's dependency on Europe is really not that dramatic. We all know India is very much 85-86% a home grown economy and a domestic consumption story which is good news.

Q: The overwhelming feature of our market has been the kind of money flows we have got. What do you hear about in terms of whether there is more to come or whether this is long only money that's coming back into India after seeing underperformance last year?

A: Frankly, it's a mix of all of the above. I read somewhere there have been USD 17 billion flows into EMs. We at Religare have raised several USD 100 million of funds in the Far East to put into the market in India. So, it's all of the above. A lot has come into the fixed income space as well. So that accounts for some of the move back that we have seen in the rupee.

Across the board and generally, the sense is the EM story remains to be told. People are underinvested in EMs generally, so you are seeing that sort of flow back into these markets. You have seen it happen in Russia and probably less so in Indonesia, money will start flowing into China again, so it's across the board and clearly India is a big beneficiary of that.

Q: The one fraternity that has been left out of this rally has been the domestic fund managers. What is your sense of the kind of flows that we have got with respect to FII's and the contrast of outflows from the domestic money? When do you suggest domestic participation will get back into the market?

A: The sense clearly is even the domestic payers have perhaps missed this rally a little bit. They have been net sellers into the rally. A lot of them are sitting on large chunks of cash. I suspect over the next few weeks that stuff will trickle into the markets as well. My sense is they are also waiting for a decent entry point. People don't necessarily want to chase this market and it's possible in the next few days you might get that entry point.

SBI is a good example of an interesting entry point - 8% lower that what it was yesterday. India remains a compelling story. They all like the India story and are probably doing their research as to which names and sectors to pick, but they will come into the market soon.

Q: What would you advice your investors to buy because the biggest runs have been in high beta spaces? Do you go with that or do you go back into some exposure to do defensives?

A: If you are operating in a market like India, you have got to have NBFCs in your portfolio, you got to have consumption stories in your portfolio, some infrastructure, real estates or high beta names which a lot of people have done quite well in the recent past with but if you are a long-term player and if you are a long-term investor and frankly that's what the equity asset class is, banks, NBFCs, consumption stories will remain robust. As interest rates come off in the next few months, you see these headed higher from here.

Q: How do you read the road of crude going ahead if indeed we are headed for an upward trajectory on crude as well?

A: We have seen the impact of crude on India quite clearly. It's a big impact on input prices, big impact on currency etc. The last USD 15 move on crude is probably on the back of what is happening in Iran. I'd like to think that is something that gets sorted and OPEC and other oil producing countries probably will keep oil between USD 100-115 per barrel. So this spike is sort of a little more fear induced and it will settle back down to sort of low USD 100 per barrel which is where everybody has done their planning. So I wouldn't be too worried in the long-term about oil. I think it probably stays at the USD 100-110 per barrel level.

Q: How would you approach the Indian market in the context of heavy newsflow that we have in the next one month? How much of an overhang do you think global developments are on India right now?

A: I don't think it has anything to do with Greece, but yes there are bits of goldilocks being priced into India that UPA and its allies will win certainly in four-five states, that the interest rates cut that have been aggressively priced into the market by commentators will come to pass. But we should not forget how many geographies around the world are growing at 7% or close to 7%.

The consumption story in India continues to be as good as it's been for a fair length of time. Yes, money has come in but the flip side of that was net money got taken away last year. So money that should have been on a macro basis has come into this market that didn't come last year. Yes it's had an aggressive run-up, but does that mean the Indian market is overvalued, the answer clearly is no. That's what makes a market right. I don't think a lot has happened that shouldn't have happened quite frankly.