Many selling into relief rally but not us: Birla Ins CIO

The weakness seen in the markets today implies some money being taken off the table by traders who were anticipating a relief rally and who now want to cash out, says Birla Sun Life Insurance CIO Sashi Krishnan.In an interview with CNBC-TV18, Krishnan however said that this was not a "fundamental view" of the market."We are selectively buying in the markets and are betting on the infra theme and some banks," Krishnan said.Bank stocks, he said, have seen some part of the NPA problem being resolved, thanks to steps the government has taken, he said. Still, he would want to bet only on banks that have a strong retail franchise and have recognized their true asset quality picture.Below is the transcript of Sashi Krishnan’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: A lot of domestic institutional investor (DII) selling over the last four days. What would you attribute that to?A: I do not think there is significant selling, but many people are selling into the rally, because there was quite a bit of a relief rally post the Budget, so markets have gone up by almost 7.5-8 percent from the bottom that it hit prior to the Budget. And all of us who bought into the pre-Budget sort of correction would obviously be booking some profits. But I do not think this is any fundamental refreshment of the view that people have on the market. Ekta: But has anything changed significantly post the Budget, because while DIIs have been selling, we have seen foreign institutional investors (FII) turn the corner and they have been buying for the past four consecutive sessions in the cash markets. So, your sense in terms of whether something has changed for us specifically post Budget, or is it just us along with the global markets?A: As far as the domestic situation is concerned, there is a lot more confidence post the Budget. And in terms of fact that the intent that the Budget put forth in terms of fiscal consolidation, which could possibly lead to easing interest rates which could revive the investment cycle, I think came out very clearly. As far as we are concerned, we have not been sellers in this market, we have been looking for opportunities to buy. We continue to remain overweight for example, in the banking sector, which we had got in prior to the Budget, when this correction happened. We continue to be buying into stocks like cement, stocks that play the infrastructure cycle. So, selectively, we are buying into this market, we are really not big sellers. It is just some people who are taking advantage of the trading opportunity who are selling at this point of time.Anuj: You did say that you started buying the banking stocks ahead of Budget. Would that include public sector undertaking (PSU) banks as well?A: We were basically buying into banks which did not have a serious problem as far as our capital was concerned and banks that had to a great extent gone through some of the recognition process and has a decent liability franchise, that is what I mentioned to you last time that large part of them are private banks that have got a 50-50 sort of asset portfolio both the corporate and the retail franchise as well as reasonable capitalisation.Anuj: The likes of ICICI and Axis Bank?A: Correct. But the story improves because there is a lot that has been done since then in terms of addressing this issue relating to the lack of capital in the banking space. That is one of the reasons why you are seeing that the Bank Nifty has moved up quite significantly like it has almost recovered all that it has lost from its high. There is a lot more confidence that if the extent of the problem is Rs 1,60,000 crore, we seem to address at least around Rs 1,10,000 crore out of that Rs 1,60,000 crore. So, the problem is not as big as many of us thought it was a few months back.Ekta: Deleveraging seems to be the big theme that is playing out. Either we have already heard of companies that have announced deals such as JP, Ultratech and even Crompton today and even IFCI, which is possibly looking to reduce stake in Stock Holding Corporation. Would that be the big theme that we could see play out this year and if you had to play that theme, which might be the sectors that we could see it unfold in most?A: If you look at some of the problems that are faced by at least a large number of the infrastructure guys is the fact that their balance sheets were seriously leveraged. It is not today, it is almost for the last two years, we have been saying that there has to be some serious deleveraging that happens. In the infrastructure space for the health of these companies to improve and also, it is going to be a very critical think for the investment cycle to revive because unless they deleverage, there is no which way they can put more money back into investments.I think the key to the whole thing is that where are you going to get the buyers for this and that is going to be important, because unless we make it easier for people to do business, you are not going to find a lot of overseas entities coming and buying out assets in India. As far as a lot of the Indian large businesses are concerned, who are already in some of these businesses, some of them are running at not very high capacity utilisation levels. So, it is going to be a tricky question but the deleveraging process has started and we are seeing a lot of sectors especially like cement, etc. where a lot of the assets are getting sold out, power and cement for example, where assets are getting sold out by people who got leveraged balance sheets.