Karvy Private sees leadership shifting to midcaps ahead

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Karvy Private sees leadership shifting to midcaps ahead

In an interview with CNBC-TV18, Varun Goel, Head – PMS of Karvy Private Wealth, spoke about his reading of the current market situation and his outlook.

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Excerpts from Closing Bell on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets ICICI Bank BSE | NSE 24/05/12 Are Mutual Funds betting on ICICI Bank?

In an interview with CNBC-TV18, Varun Goel, Head - PMS of Karvy Private Wealth, spoke about his reading of the current market situation and his outlook.

Below is an edited transcript of his interview on CNBC-TV18. Also watch the attached videos.

Q: ICICI Bank was the big mover today, with a 6% rally. How much more would you give it from here post the earnings?

Goel: Most of the private sector banking names have come up with very good set of numbers. If you look at the earnings growth, most of the banks have been able to deliver 15-20% plus kind of earnings growth. The asset quality has not really deteriorated to the extent to which people feared. From this point onwards, we would continue to be positive on the private sector banking names as and when RBI starts the repo rate cuts, the banking sector should continue to deliver further returns from these levels.

Overall, the outlook for the private sector names continues to be positive.

Q: What's your call on the market now? We have seen some turbulence after a one way rally. Do you think there is more upside in the near-term?

Goel: In the beginning of the year, we were looking at 20-25% kind of market gains for the calendar year. We will continue to hold that view. We have seen a very, very sharp 10% kind of a move, which has reversed the India-specific correction that we saw in last two months of calendar year 2011. From this point onwards, it will be more driven by global cues.

What happens in euro? Whether the easing liquidity resume there continues? If we don' see any big shock coming out of Greece or any other country we would expect this rally to continue. The key trigger for markets now is what RBI decides to do.

The onus for arriving the growth and the markets lies completely with the RBI this year and if the RBI actually goes out and starts cutting repo from March itself we would

Q: Do you see midcaps doing better now or largecaps actually leading the market past that 5200 kind of level if you had to bet on relative performance?

Goel: It will clearly be midcaps. Last year a lot of the midcaps got beaten down 60-70-80%, especially some of the sectors like PSU banking space and infrastructure. As and when we see a reversal of the interest rate cycle, we would see some of these stocks bounceback very sharply. In most of the largecap names, you have already seen a 20-25% kind of a gain and going forward the leadership should shift towards the midcap space.

Q: What are your thoughts on the entire space and the expectations from hereon because there had been disparate performances either L&T being good and BHEL not so good?

Goel: One has to distinguish clearly between the power and the non-power infrastructure sectors. Power sector specifically continues to be in a big mess, a lot of issues in terms of state electricity boards. Also in the generation and transmission side companies really struggling to get orders. I think that situation will continue for sometime.

Till the time we have a clear resolution of the state electricity board issues we might see some kind of slack in the space. I think the non-power infra space is still better off. The construction activity will clearly revive and last year we saw almost 30-40% EBITDAs of most of these construction companies being consumed by interest expenses.

As interest rates come down, we would expect the profitability of these companies to recover very, very sharply. We would be very positive on the road sector and especially construction companies which are geared towards the road space.

Q: What are your thoughts on banks? Are you recommending buying any of these private banks at this level and would you be pessimistic on the public sector space?

Goel: As far as public sector banks are concerned, the pessimism there is overdone. In fact, now the concern has been that these banks have been carrying a lot SEBs and airline exposure. In fact, we were doing this exercise, even we were to write-off 50% of SEB exposure and it's one of the selected PSU banking names. They still continue to trade at less than one times book, FY13.

Selectively, there is a lot of value even in public sector banking names especially the mid tier-I and definitely the private sector banks, they still look good for a 15-20% kind of earnings growth for the next year and that should be the equity market upside also.