G Chokkalingam, Centrum Wealth Management shared his readings and outlook on the Q3 earnings in an interview to CNBC-TV18.
According to their report, midcap and smallcap companies have had more winners than Nifty companies. Explaining the the report, he says, most of the companies from the Nifty and Sensex are directly related to stressful sectors and many companies had gone in for aggressive expansions that went wrong.
Whereas, many companies outside these broader indices have focused on individual micro businesses and done fairly well, he asserts.
Within the banking space he says they are aggressively buying Karur Vysya Bank Ltd, Citi Union Bank and South Indian Bank because not only are they efficient but their net Non-Performing Asset (NPA) is also anywhere from 0.38 to around 1 percent.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: You have made a very interesting observation in your report that actually the broader market companies; midcap and smallcap companies have shown many more winners then the Nifty. Is that the observation that actually it’s the big companies that have disappointed?
A: Certainly, it was as per our expectation. If you look at our broad indices, either Nifty or Sensex, most of the companies are directly related to certain stressful sectors. Also many companies have gone in for aggressive expansion in the past, which have gone wrong; either acquiring a core business or acquiring resources outside the country that has gone wrong.
You also, you see lot of leveraging issues. Therefore, many companies in the broader indices have got impacted.
Whereas outside these broader indices, there are a lot of companies which are focused on individual micro businesses which have done fairly well. So that is why for 3,000 companies as a whole, we have seen about 20 percent profit growth for the latest quarter.
Q: Sticking with the midcaps in the banking space, which are the winners that you have picked?
A: I have been buying aggressively stocks like Karur Vysya Bank, Citi Union Bank and South Indian Bank. All these belong to old private sector category. If you look at the banking space, the consolidation in this particular space started almost about 18 years back. All these three banks are very efficient. Their net Non-Performing Asset (NPA) is anywhere from 0.38 to around 1 percent. The quarterly profit itself is enough to write-off the entire outstanding net NPA for some of these banks.
Also as and when the banking licenses are issued, I firmly believe that there would be one or two acquisitions like ICICI Bank took over Bank of Madura in 1990s. Second major trigger for these banks would be the Banking Bill which provides 26 percent voting rights.
Many institutional investors, both from outside the country and within India can think of acquiring anywhere from 5 to 26 percent stake. So all these triggers would play out and I am pretty confident that the way they created the wealth in the past, they would continue to create in the next one to three years.