DII redemptions to continue; BoB, OBC top bets: Religare

In an interview to CNBC-TV18 Tirthankar Patnaik of Religare said despite the market at all time high level, participation from domestic institutional investors remains muted. Infact, many retail participants are looking to exit at the current levels, he added.

He believes for DIIs to participate, the market has to hold the current level for few months. “Talking to our insurance and domestic mutual fund clients we do not get the signal that they are looking to invest. We do not believe until redemptions go off, DII participation will increase in the market,” he elaborated. Meanwhile, he recommends buying private banks. From the public sector pack, Bank of Baroda and Oriental Bank are his top picks. Also Read: Stick to defensives, shun PSU banks, cement, says Envision Cap Below is the edited transcript of Tirthankar Patnaik’s interview with CNBC-TV18 Q: How important is that core sector number? Will it push you into buying some stocks you have hitherto avoided? A: Performance is pretty much inline, even in the previous month core sectors did fairly well and yet the overall Index of Industrial Production (IIP) came in slightly lower. So, I would be cautious about signalling a recovery. This time, Coal India had amazing numbers, about 16 percent coal production. Previous numbers had a little bit of a base effect. Ageing oil field of Oil and Natural Gas Corporation (ONGC) KG-D6 basin had permissions, so these numbers have come in fairly well. I am surprised positively, but I would still wait for the final IIP numbers. Q: Would you think that bank stocks deserve a look in because at least bad news is trickling to a slowdown? A: Yes, bank stocks do deserve a second look. Slippages have come off, but restructuring pipeline is likely to remain fairly wide for the coming one or two quarters at least. We for one would not be changing our top down stance at the moment. I would wait for another quarter at least to see if this really holds, are we really at the bottom and then revise and upgrade PSU banks. At the moment, the only thing we would be possibly buying is private banks. We seem to have hit the bottom at this point. Q: What is your view on how the November series may pan out? With the market sitting at all-time highs we are still not seeing any participation coming from the domestic guys. Domestic Institutional Investors (DII) even today are selling close to about Rs 700-800 crore per day. What is your advice to investors now? A: At the moment whenever you speak to DII clients you see only redemptions. If they want to put money then they have to see money come in. Talking to our insurance and domestic mutual fund clients we do not get that signal yet. We do not believe until redemptions basically go off will DII participation increase in the market. For that, the market has to stay at these levels for about one or two months, three months and then we would see possibly retail interest getting back in. At the moment people just want to get out. Many stocks because of the narrow focus of this particular rise are still at meaningfully lower levels than what they were in the previous high. In the Sensex, about 18 stocks have more than 10 percent upside to their lifetime highs when compared to the 2010 high. So, many people in retail side at least still wanting to just get out at these levels. I would not be seeing redemptions slowdown.