Bank Nifty to outperform mkt; fund flows positive: Religare

On the back of the Reserve Bank cutting the marginal standing facility, or MSF, by 50 basis points on Monday to ease liquidity, Tirthankar Patnaik of Religare Capital Market sees the Bank Nifty outperforming Nifty. He says today the SGX is up about 48-50 points, so one would expect the Bank Nifty to be up at least 1.5-2 percent to begin with and probably even higher going forward.

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He feels India's export commitments will come into question if the US shutdown continues for long, though at the moment flows into India are benefiting from the fact that any protracted slowdown will lower the odds of a US taper considerably through this year.

Despite the positives on the fund flow side, Patnaik does not see the government take any major decisions on fuel subsidy going forward. He expects FY14 fuel subsidies to be around Rs 1.4 lakh crore, of which government share would be around Rs 1,00,000-1,10,000 crore.

On second quarter earnings, he does not see any meaningful downgrades post the announcement of results. He expects FY14 earnings growth to be in the range of 5 percent. Sectorwise, he continues to remain bullish on IT and pharma. He feels the market may hit new highs of banks don't provide any negative surprises.

Below is the verbatim transcript of Tirthankar Patnaik's interview on CNBC-TV18

Q: There seems to be a decoupling here, isn’t it. We have been relatively outperforming. Is the US shutdown seen as more impacting north again markets which are export oriented and so is there a bit of partiality in the fund flow towards India?

A: That partiality was also seen when Indian market fell more than north Asian markets in May-June. So, India’s export commitments will come into question if the US shutdown continues for long but at the moment flows into India are benefiting from the fact that any protracted slowdown will also lower the odds considerably of a US taper through this year. At this point market participants are factoring that in and it is essentially leading India to outperform.

Q: Today at least global equities are not providing any kind of direction so just on the back of the Reserve Bank of India (RBI) news about cutting the MSF rate how much up move would you give to Nifty and Bank Nifty just in the near term?

A: Bank Nifty should do much better than Nifty that is a given. Yesterday the bank stocks in the Nifty universe were down nearly 2.5 percent but then they picked up towards the end of the day probably factoring in some kind of news from the central bank. Today the SGX is up about 48-50 points so one would expect the bank Nifty to be up at least 1.5-2 percent to begin with and probably even higher going forward. And in that both of the constituents Axis Bank and IndusInd Bank are wholesale funded, they depend on good amount on wholesale funding therefore that is where we should see the maximum amount of bounce really.

Q: How are you reading the green shoots? Would you take it very seriously, the finance minister’s statement to Reuters in an interview yesterday that fuel and food subsidy needs to be cut? Is there an indication that you can still keep hope for something seminal to happen in fuel prices?

A: We have been fairly cautious about subsidies from the beginning of the year. We have been expecting the government to come up with continual raises in diesel prices which is practically been happening. A large part of the street was expecting something big to happen in September given the under recoveries in diesel going up meaningfully. We were not in that camp and we are not now. We would not expect anything major to happen on fuel subsidies going forward.

The only thing we have seen now especially on gas cylinders is that gas retailers are allowing cylinders to be marketed at retail places but on fuel, nothing major. We are expecting just continual raises in diesel prices and petrol to be fluctuating. So, in our opinion - overall under recoveries would be somewhere around Rs 1,40,000 crore odd for the year and of which the government share would be around Rs 100,000-110,000 crore.