Hold on! Banks will be back after the dust settles: Expert

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Hold on! Banks will be back after the dust settles: Expert

As traders cut their positions in banking sector, the usual outperformer have suffered deep cuts today. However, Rajesh Agarwal, head of research at Eastern Financiers says that the star sector of the market will be back on top in a year's time and investors need to hold on to them.

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Excerpts from Markets Midday 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

As traders cut their positions in banking sector, the usual outperformer have suffered deep cuts today. However, Rajesh Agarwal, head of research at Eastern Financiers says that the star sector of the market will be back on top in a year's time and investors need to hold on to them.

"At present, there is pressure on banking stocks due to various reasons, including increase in NPA or interest cost. But in a year's horizon, we will see a rise in banking stocks," he says. He believes if the economy has to grow at 7-7.5%, banks will outperform. And, maintains a hold on SBI and ICICI Bank .

Further on the mining bill impacted JSPL, he says the company is more of a power manufacturer than steel. He says if one has a time horizon of 12-18 months, JSPL will appreciate 30-40% from the current price level.

Meanwhile on the real estate sector, he asks investors to ditch stocks like DLF . However, he is upbeat on debt free companies like Oberoi Realty , Godrej Properties and Ajmer Realty .

Below is an edited transcript of Rajesh Agarwal's interview to CNBC-TV18. Also watch the accompanying video.

Q: What would you recommend for investors with a one year perspective on SBI and ICICI Bank?

A: I would suggest holding on the stock since the caller has a one year time horizon. In the current scenario, we see pressure on banking stocks due to various reasons - increase in NPA or interest cost. However, going forward with a one year time horizon I think the dust will settle down and we will see a rise in banking stocks.  When you talk of an economy growing by 7-7.5% on a very conservative basis, you can't leave banks behind. So I think banks are going to outperform.

As far as SBI and ICICI Bank are concerned - both are the largest banks in their own sector. SBI is in the public sector and ICICI is the third largest bank in number of branches and it's one of the leading banks in private sector.

As far as ICICI is concerned, we have seen 30% jump in PAT in the last quarter. There were concerns because CASA has gone down and there were concerns about overseas lending and so. However, we feel that with 30-35% cut in market cap from their 52 weeks highs, all that negatives have already been discounted. Currently, it's quoting at a PE of around 16 times its FY12 valuation which is on a reasonable ground. Even if ones funds do allow, one can add on to both of them.

Q: With the mining bill coming on, the woes of steel and power companies are not going away anytime soon. What do you recommend for JSPL?

A: One should definitely hold on to the stock because as far as Jindal Steel and Power goes, although the name suggests that it's a steel company but the bottom line and top line comes from power.

Basically it's a power company which is into steel. The companies supplies to the railways. They are increasing their power capacity every quarter. Even in the next one year, their Bolivia operation is going to add to the bottom line which would be a great trigger for this stock.

They have recently announced a large agreement with Jharkhand government for new expansion plans. They have raised around USD 475 million dollars for their overseas operations. All these things are very positive for the company although there are negative news flows regarding the mining bill which is taking a toll on the stock price. However, quoting at around less than 11-12 times its FY12 earnings, this is a very good buy at this level. Yes one has to stay patient for another 5-6% or 10% cut in the price but if one has a time horizon of one year or 18 months I think 30-40% appreciation from the current price level is quite possible.

Q: What would you suggest on DLF?

A: I don't think there is any point in holding to the realty stocks as such DLF being one of them because these companies are surrounded by their own problems - low demand, high inventory or higher interest cost.

Even the corporate governance has become a question mark on all it. DLF has resorted to selling off its SPV's to de-leverage its balance sheet but these sales are not on a profit basis but rather a distress sell which they are trying to do.

I don't think this is going to help the company in the long run. I would suggest a sell on any bounce back, maybe 10-20% from here due to market condition. If one gets a bounce back, just book your stop losses and get out of the stock.

Q: Anything in the real estate space that you would recommend, maybe something which is debt free like Oberoi Realty or Godrej Properties?

A: Yes, Oberoi Realty or Godrej Properties are two companies that can be bought for a very longer term. However, the best pick in this entire space would be Ajmera Realty which is totally debt free and they have some of the good projects in Bombay region. I think that company can give you good returns and they are not surrounded by any of the problems that the realty sector is into right now.