Results review: Karvy bets on private banks, pharma, FMCG

Varun Goel is bullish on private sector banking names, pharmaceutical companies and FMCG companies on the back of better second quarter earnings.

"More companies have surprised on the positive side than on the negative side. Private sector banking stocks, pharmaceutical companies and FMCG companies announced very good set of numbers. We continue to be positive on them," he elaborated.

Below is the edited script of his interview with CNBC-TV18’s Sonia Shenoy and Reema Tendulkar

Q: What are your thoughts on the repeated asset quality pressures that public sector banks have seen and how would you approach State Bank of India (SBI) now at about Rs 2,170?

A: We have been very concerned about the asset quality pressures that most of these public sector undertaking (PSU) banks have been facing. I do not think we have seen the worst in the cycle so far. I think in the next few quarters we could see some more slippages, some more increase in gross and net NPA numbers. So the results that we have seen, shows what difference a good management quality can make to the fortunes of a bank.

As far as we are concerned we are bullish on private sector banking names and we will completely stay away from public sector banking names.

Q: You do not see the weakness in the economy starting to affect the asset quality of private sector banks as well?

A: I think from a macroeconomic perspective, we believe that economy has troughed out this quarter so gradually we are definitely going to see uptick; be the IIP numbers, be the actual sales data that we are getting from various manufacturing companies like auto and cement. We have all been hearing that this has been a good festival season and gradually we are going to see an uptick in the economy.

As far as private sector banks balance sheets are concerned, I think they have done a good job in terms of risk management. They have been able to lend in a more-more cautious manner as compared to some of the public sector banking names. Of course all the weak industries like state electricity boards, airlines, most of the exposure lies with the PSU banks. Hence we believe that private sector balance sheets are much cleaner.

Q: Could you walk us through your top picks or what the top misses have been?

A: If you look at the results, more companies have surprised on the positive versus on the negative. I think clearly private sector banking names, pharmaceutical companies and FMCG companies have come up with very good set of numbers. We continue to be positive on them.I think even selectively auto companies have come up with very good numbers.

I think the sectors, which have surprised mostly on the negative are PSU banks and ofcourse some IT companies.