Bank Nifty can fall 4-5% more: Anand Rathi

Sandeep Shenoy, Anand Rathi Financial Services, does not believe that risk-off from United States will become an overhang and cripple India although Indian market has seen strong sell-off in the past few sessions. Speaking to CNBC-TV18, Shenoy said the global liquidity flow towards India will be impacted following which one could be going in for an extended period of sideways movement.

He is bearsh on the banking space and believes it will have a negative impact on the entire broader indices. "There could be correction on Bank Nifty and it could lose around 4-5 percent from hereon," he said. Also read: Expect more reforms in Jun-July: Chidambaram Below is the verbatim transcript of his interview on CNBC-TV18 Q: With fears that sooner or later this risk-off from the United States will keep coming as an overhang – has this become a sell on rallies market? A: I don’t think so because since the beginning of the year it was always read that if the earnings were not keeping pace, somewhere or the other that painful adjustment would take place. We had a couple of sell-offs and the sell-off in the last few days is getting accentuated. Therefore, the global liquidity flow towards India will definitely get affected because of what is happening in the US but I wouldn’t go to the extent of saying that our back is going to get broken. The basing out has happened and one could be going in for an extended period of sideways movement which could be drawing to an end soon. That is where the embryonic stages of the next upward trend in the market are going to begin. Q: Banks have been underperforming as the street started getting tuned into expecting that the Reserve Bank of India (RBI) this time is not going to be cutting rates. As those hoped diminish we have seen the banks underperform – what is your call on the Bank Nifty or in general on all these banking names. How do you expect them to move? A: Banks may see a stray move coming because of RBI rate cuts and all. The problem, the malaise in banks is much larger than that. It is going to be largely driven by the loan quality book and that is where the PSU banks really are at a disadvantage compared to or vis-à-vis the private sector bank. The Bank Nifty right now has become more of the system of some of the large private sector bank and that is what is holding the index up. There could be correction on Bank Nifty and it could lose around 4-5 percent from hereon. That is why we feel that capping of the entire broader indices will also happen because Banking, Financial Services and Insurance (BFSI) whether we like it or not constitutes almost one fourth of the entire market weightage. PSU banks definitely going to have difficult couple of quarters ahead of them and private sector banks howsoever good they do, they are not going to be able to take the slap from them. Yes, it is going to be a downward trade in the Bank Nifty. Q: In that case, the market is going to be a bottom-up market because you are expecting it to move sideways, it would be perhaps a stock pickers market you think? A: Definitely. I think the way some of the stock got hammered in the last few weeks and yesterday especially, it is going to be more or less a picker's market. However, one has to be also clear that when this kind of a sideways movement happen the noise is the maximum and any adverse news which normally in an upward trending market would have got swept away without a hiccup tends to have a 5-10 percent draw down on a stock and that is going to be part and parcel of life for the next few quarters. Q: If it is a stock pickers market where would you place your bets- as you say noise will take its toll will it be largely defensive market- will you at least in term of top down prefer IT and pharma? A: Pharma is one where valuations are rich but they are not straining at the seams like fast moving consumer goods (FMCG) that is where some kind of a safety could be there. As regards IT, one has to be clear that it is one horse race and the other stocks are languishing or having their own set of problem. One has to be careful there. The only sector where one can say some amount of safety is there, could be pharma and private sector banks. Q: What in the pharma space? It is not as if it will not be impacted by noise are there any specific stocks where you will place your bets? A: We are bullish on Cipla, and  second rung stocks. That is where the safety numbers come in, The balance sheet of Sun Pharma is so straong that a hit of  USD 550 million hit also it can take on its chin and still walk around straight. So somewhere or other the balance sheet of these companies if not  good as FMCGs maybe better in some cases. So, free cash flows generating sectors, with strong growth and decent overseas as well as domestic presence are going to be the players who are going to be emerging as winners in these days. Q: On the midcap end how would you approach Titan Industries and Apollo Tyres at current levels? A: Apollo Tyres is more akin to a python swallowing a big animal and we will have to take sometime to digest it also. It is a decent holiday from that stock for sometime. On Titan it could some kind of noise as well as some kind of quasi-structural issues but I do not think the company's business model is impaired in any way. Yes, you have some noise factors which could be because of sell-off or because of RBI's clamming down or because of some policy changes happening or even because of some fears of inventory drawdown or mark down which maybe unfounded. But that is one company which on all draw downs or all corrections makes a decent bet to bank upon. Q: There have been small seminal corrections in policy coming from the government. We hear that more and more power distribution companies have signed up with the banks for fresh money and that their state governments are coughing up half the accumulated losses or debt. Three state governments almost signed, one of them had even already signed UP, Haryana and Tamil Nadu. Will you see any winners from this process? Gas pricing revision will perhaps come sooner rather than later. Will these small policy corrections with the government with its back to the wall, mean some winners for you? A: UP, Haryana, Tamil Nadu, the so called classified delinquent states or SEBs more or less have bitten the bullet and hiked power tariffs. Trying to extrapolate saying that it will be a Tata Power, Lanco or somebody else is going to be winner could be premature. The first amount of positivity which could be fallout of this could be the Power Finance Corporation (PFC), Rural Electrification Corporation (REC) or maybe the PSU banks who are lending to them more on working capital as well as term loan basis, I think that is where you could see some kind o,f a re-rating happening. The same thing to trickle down to utilities and generation companies is going to be at least a year down the line.