Why is Mirae Asset betting on banks?

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Positive on banks, sugar; negative on cement: Taib India Kotak Institutional's stock/sectors picks post earnings

Rahul Chadha, Head of Indian Equities, Mirae Asset Global Investments, says banking may be an interesting opportunity over the next six months. He is underweight on the oil and gas space.

Commenting on Q3 earnings, he says IT numbers have surprised on the topline. "We have seen good numbers from banks."

According to Chadha, China may have a small term negative impact on markets. He is also watching the fiscal deficit and the government's borrowing programme next year.

Here is a verbatim transcript of the exclusive interview with Rahul Chadha on CNBC-TV18. Also watch the accompanying video.

Q: What are your thoughts on how earnings season has panned out for us?

A: Earning season has been better than expectations. We have seen earnings from IT, autos and financials. IT has clearly surprised on the demand momentum and earnings, particularly in terms of revenue growth have exceeded most analysts' expectations. That is clearly a positive.

In terms of financials, we have seen results from private sector banks, the gross non-performing asset (NPA) formation is under control, net interest margins (NIMs) are stable and those are good set of numbers.

In terms of autos again one has seen a good set of numbers. So I think earning season is clearly a positive surprise.

Q: From where you sit, you would be hearing a lot of what China has been up to over the last seven days, is it beginning to concern all investors in the region or do you think it will pass and the markets may remain stable despite Chinese tightening?

A: I think the tightening, which we are talking about, is marginal increase in CRR (Cash reserve Ratio). You have to put things in perspective, if you annualize the lending China has done for the first fortnight in the month of January that number comes to nearly 4 trillion, which is equivalent to their gross domestic product (GDP). So I think that is why the central bank and the government over there is acting to make sure that this lending doesn't go beyond 1 trillion target, they had in mind. So obviously markets may have some small near-term negative impact on markets, but we don't think that this is going to be a lasting impact at least in this year.

Q: How are you approaching the frontline IT space after what you saw from Infosys, Tata Consultancy Services (TCS) and Wipro? Are you maintaining an overweight stance out there or do you think the good news is all in the price?

A: We are neutral to marginal overweight. The stocks have done well. If you see the last quarter of CY09, stocks outperformed the markets. So stocks have done well, I would say stocks are fairly valued on FY11 earnings. But these are good companies, well-managed free cash flow positive, high return on equity (ROE) companies. So if you see a period of uncertainty over next three-four months, the stocks would outperform the market.