FII flows better in Aug; like private banks, IT: Nomura

There has been a sharp reversal of FII flows in August so far. June and July saw sharp outflows, while August is seeing net inflows, says Tushar Mahajan, Head of listed Futures & Options - India, Nomura. On the F&O side, people are building long positions on the Futures side and the Nifty is likely to see support at 5470-5480 levels, he told CNBC-TV18 in an interview.

Mahajan sees no signs of Bank Nifty bottoming at current levels. "I don't see any rush for foreigners or even domestic investors to cut down their short positions. Neither results nor price behaviour have been encouraging for banks," he added.
He feels that private sector banks are better placed than public sector lenders.
He is positive on midcap stock Jaiprakash Associates, which has seen almost 50 percent correction. He is also keen on quality infra names, Hexaware Technologies in IT and Marico in the consumer space. Below is the verbatim transcript of Tushar Mahajan’s interview on CNBC-TV18 Q: Can you assess for us the behaviour of Foreign Institutional Investors (FIIs) in the F&O space? Is it giving you a sense that there is a bit of support coming in for the market at lower levels? Is there action depicting the idea that they see support at 5500-5550?
A: I think so. The first data point to look at is this big reversal of FII flows in terms of trend. From sharp outflows which we had seen in June and July, August so far seems to have reversed that trend where we are seeing net inflows. Even on the F&O side we are beginning to see people build up long positions on the Futures side. If you look at the overall options data on the index as well, while there are positions built up to the 5400-odd level I definitely think people are now less worried for a fall. So probably around 5470-5480 odd levels, which has seen the market take support for almost two times in the recent past we could see some kind of a support coming in and that may just be the short-term bottom for us. Q: What about the Bank Nifty? It has crumbled. It has had 25 percent fall since May and maybe a 17-18 percent fall since July 16 when those measures were announced. Are you getting a sense that there is further weakness in the offing or are we entering value zone or is the F&Os behaviour suggesting that a floor is in place?
A: That is a space which we are still worried about a bit. I think the steep fall that we have seen on the banking index I remember maybe in May or early June we were talking about the index touching 52-week highs and not just sustaining there and coming down to where it is and now we are talking about almost beyond 52-week lows. So that is the space which we are still worried about even on the charts so to say.
We have seen the trend broken in from as back as March 2009 which if you recall was pretty much the bottom of the markets after the global financial crisis in 2008. That trend has been broken and as of the moment in terms of all the indicators that we look at on the Bank Nifty there just does not seem any rush for foreigners or even domestic investors to cut down their short positions. The results have not been too encouraging. The price behaviour has not been too encouraging. As of the moment there are really no signs that we are entering into a bottom zone for the banking index. That is a space which we would really want to keep an eye out on. Q: Are there any specific stocks in the banking zone itself which look like an outlier?
A: Not really. If you look at the trend, obviously the private sector banks are probably a more preferred versus the public sector banks. If you look at the valuation zone, the public sector looks definitely better, but if you look at the non-performing asset (NPA) story people are not really too convinced on the valuation argument for the public sector banks as well. If you have to look at within the banking space, the preference is private sector banks, but when there is a sectoral drought there is only one better than the other. It is really tough to call it for an absolute performance mode. Q: What has really stood out in the past several months has been the IT space and the consumer space. In the consumer space we did see some profit taking coming in already. We saw attacks on some of the consumer heavyweights. Are you expecting weakness in the midcap consumer space or is there a pocket of strength over there?
A: From an index standpoint consumer is probably going to be a pocket of strength to the extent that we have seen the stocks correct from the kind of highs that they made recently. So they have corrected a bit on the valuation front as well and in terms of further downside while data does suggest that consumer spending is also slowing down and the growth in that sector maybe slowing down, there is still certain aspect of a defensive play on that sector. The consumer sector is expected to continue to outperform the index and when we say that probably the index is meeting its bottom you could see some absolute gains on consumer stocks, both on the large cap space as well as on the midcap consumer space. Q: Are you all looking at any strategies for the mid-cap space? We are seeing a semblance of support coming in that area, third day running, any specific stocks that you are designing strategies?
A: Some of these midcap names like Jaiprakash Associates and all which have significantly fallen down over the last almost two months, they have seen almost 50 percent kind of corrections there, those are some of the names which are beginning to see some kind of semblance overall as a midcap standpoint.
From a strategy standpoint, you would probably still want to look at a similar pack which is an infra pack on the midcap space, quality infra names and just an extension of what you are seeing on the index, midcap IT, the likes of Hexaware Technologies, midcap consumers, Marico has reported a strong set of numbers, so that is something which we could look at. If you want to look at an overall strategy, I do not think I would still want to call in for an outperformance of a midcap index versus the Nifty as a trade which is going to sustain for too long.