Reliance a risky stock to play in for traders: Kunj Bansal

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“If the market starts to move upward, then there is a likelihood that in the sectoral rotation, we may see buying coming in the BFSI sector and banking might outperform. But if the market remains lacklustre, then that may not happen,” says Kunj Bansal, CIO, Karvy Capital.

What is your view on the banking space? Would you start to take in largecaps or would you avoid the sector because there does not seem to be any recovery?
For almost eight-nine months now, the whole BFSI pack has been underperforming the broader market, the Nifty. Going forward, it depends on how the market itself shapes up. The Nifty peaked on October 18 at 18,500 and since then we have been going down. If the market remains flattish to correction, then there is no reason that the BFSI participation will come in. If the market starts to move upward, then there is a likelihood that in the sectoral rotation, we may see buying coming in the BFSI sector and banking might outperform. But if the market remains lacklustre, then that may not happen.

Do you think it is mainly because financial names are something which FIIs own quite significantly and they have been selling?
That certainly can be one of the reasons. These are large market cap stocks and they have been having decent buying interest not only in the last one-and-a-half year of market rise, even before that. Whenever the private sector banks have done QIPs to raise equity which most of them did after the corona last year, the large participation has come in from institutions mainly foreign institutions. So foreign institutional ownership is on the higher side and it is quite likely that they have been shedding some weight and either taking money out of India which we have been seeing. In the last two days, FII inflows have been negative or rotating it to other sectors and that could be one of the reasons.

The other reason is the market’s concern on quality, So while the banking sector per se is not seeing as much of an issue, there is clearly an NPA issue in the NBFCs more specifically in the microfinance institutions, MFIs and smaller NBFCs. That is one area where the market probably still has concerns. Today or rather yesterday, we finally got a credit growth pick up number of 7% plus, which has come in after almost one-and-a-half years.

The last 7% plus number came in March or April 2020. After that, it has been in the range of 5% to 6% or 6% plus. That was the other concern the market had that the growth had not been picking up, not that the money was not being raised but most of the money was being raised either from the foreign markets or from equities or from private equity funds and things like that. So these have been the issues which have affected the BFSI performance.

How are you reading the news flow on

I have a few observations on different areas. First, let us talk in terms of share price performance and market participants’ reaction or what they should do. It is very clear that for the traders, it is a risky stock to play in. They should very strictly play with stop losses and considering their risk profile, that is one part.
The second part from the medium term investor is that we have seen over a longer period of time, especially in the last four, four-and-a-half years which came after a long hiatus of nine years, the stock has consistently been giving return to medium term investors. So in terms of investment advice or discussion or stock price performance, there are some things which get heard of and the official versions do not come out; there are also some with clear official versions.

The official version was the press release that said Reliance has called off the proposed deal with Aramco. Every year, whenever there is an AGM, we all very hopefully, optimistically look forward towards the announcements. So maybe from next year, we would tone down our expectations because the announcement of the deal was made in this year’s AGM! Now if any announcement made in the AGM can get called off, it is purely okay.

It is a business reason at the end of the day and so nothing to read between the lines but the point I am saying is that going forward, we should all be a little subdued about the AGM expectations.

Finally, over a longer period of time, the company has been taking steps wherein it looks like going forward the different business segments will get subsidiarised, hived off and most likely get listed also. If it is a demerger, in the same ratio, the demerger will happen anyway. The relevant global institutions will take part by way of subscribing to equity into those relevant businesses. So while last year we saw all the IT majors coming in the consolidated main company, which is the only listed company as of now, it is likely that that phenomena may continue for some more time, but over three-four years, there could be a scenario wherein we can see subsidiarisation.