NSEL impact psychological; PSBs value trap: Anand Rathi

Sandeep Shenoy, ED-Institutional Equities, Anand Rathi Financial Services  feels that the impact of NSEL's actions is just psychological and it does not directly affect institutional investors.

Meanwhile, speaking to CNBC-TV18 on market trend, he says that midcap segment is under pressure as it has been witnessing exits. The sell off is seen in midcaps becuase it not offering significant returns and has seen a 50 percent fall over the past one month, he added. In the telecom space, he feels it is a ‘two horse race’ between Idea Cellular and Bharti Airtel. Idea is his best pick due to strong domestic performance and feels that things are falling in place for them. He is cautious on PSU banks as it might be a value trap going forward.  Titan Industries may be going back to its premium zone, but the volatility in the stock may continue for a while. Also read: Wise to stay away from mkt now; hold Titan: Dipan Mehta Below is the edited transcript of his interview to CNBC-TV18.
 
Q: To what extent has the markets moved today governed by what is happening at NSEL? Are there still lingering fears that some brokerages could be in trouble because of clients being affected on that exchange? A: It is more of a psychological impact or sentiment impact. On practical basis, I don't think it is going to make much of a difference because the larger index are largely driven by purchases and sales from institutional investors. I don't think they are bothered about what is happening in these two things. Q: The big numbers that came yesterday were the telecom numbers. What did you like? The general consensus appears to be that of course Idea Cellular and Bharti Airtel performed so much better than Reliance Communications. What are your favourites in that space? A: Idea clearly seems to be pulling ahead of the pack because it is a focused domestic play and things are all falling in place. Bharti Airtel did well but it is like a tail wagging the dog. The overseas operations of Bharti Airtel are now turning out to be more complex than what was envisaged by the company itself when it went into that. So now it is a two horse race among the three listed entities in that. Reliance Communications has a balance sheet which is evolving so it will be quite some time before RComm makes it to the purchasing table of most of the people. So it is a two horse race and Idea is clearly leading the race for the time being. Q: The kind of fall that we have seen in the midcap index or individual midcap names; they are down 50 percent so far in the past one month or so. It is quite baffling, what has happened in the midcap space. Have you seen a lot of retail people exiting, just selling whatever they have and will it continue? A: I am not from the retail part of the firm so I won't be able to comment on that. But looking at it on a larger basis, you can say the institutional interest in the non large caps is veining a bit. There is a liquidity issue there and the sheer amount of fall what they have done, these midcaps now constitute such a small constituent of most of the funds or schemes portfolio. Even if they double up they are not going to be moving the needle on the NAV basis. So, for practical purposes, we would be seeing these kinds of exits happening. Whatever be the price please exit because they are slowly and steadily losing their relevance in the scheme of things for large institutional investors and that is becoming a vicious circle now and we have to wait for the entire poison in the system to exit. Q: In banks, we have seen some fairly bad numbers coming from Punjab National Bank (PNB), Bank Of Baroda (BoB). Then we have the likes of Lanco filing for corporate debt restructuring (CDR), that would be the first of others. This is a whole category of people who could come into the CDR picture. Some of the brokerages even after the PNB numbers did put out a buy, will you be brave? A: To a large extent the markets are themselves trying to figure out what the perceived book value of these banks could be. Somewhere or the other quite a few of the PSU banks now have come out with list of people whom they feel are or they have put out a list which usually was never put out as regarding the slippages and the corporates involved thereon. To a large extent, now market is grappling with that. The last few days slide what you have seen it is more of a perceptible adjustment of the book value, which most of the analysts or investors are drawing themselves from the list of stocks which can probably go into CDR or restructuring. So we feel that most of the adjustment has been done. But we are more than 50 percent through the gain; the balance could be even more painful because one should always be mindful of the fact that the end of the cleaning up process the volatility is the most and we are headed for that now. _PAGEBREAK_ Q: So you wouldn’t touch PSU banks right now? A: They have a very enticing value for money proposition. But it could be a sideways movement for quite some time to come. So if you are a one-two year kind of investor, you might as well get into it, but then there is a good chance that quite a few of them may turn out to be value trap. So discretion is advised. Q: What have you made of Power Grid’s reaction to that 15 percent FPO (Follow-on Public Offering) and what should an investor and Power Grid do, that stock has lost 15 percent? A: This probably was one of the most bullet proof stock on annuity basis or on hedging basis. It had its own zone and once it is moved out of the zone that is a worrisome. Like a quasi annuity or the high degree of predictability, now is having one type of uncertainty which was never envisaged; that is worrying. Q: Titan Industries had so many bad days, but now it is seeing a vertical move partly because of the regulatory changes and probably because the worst is over still margins were under pressure. What have you made of that stock at current prices? A: This is one stock that gets that cleanliness premium and parentage despite all the imbroglio what the sector is going through. The FMCG sector is getting their premium valuation and this is one of the few companies which had a disproportionate scale up in the last few years. It probably can maintain this kind of scale up in the next few years as well. So it had a stumble and people raised questions and the inventory drawdown fears are more or less getting addressed. It is coming to the fore and the numbers are conveying that. So it could probably go back to its premium valuation zone in the next few months but volatility in the short-term is going to be more linked to gold prices and regulatory changes. So if you are able to tide over it then might as well jump on to the stock.