Stay away from banking, realty sector: Brics Securities

Vivek Mavani, Vice President & Senior Portfolio Manager, Brics Securities, in an interview to CNBC-TV18 gave his readings for stocks across various sectors. He also answered investor queries.

Citing his views on the IT sector he said, "In the last few weeks among the front line, HCL Tech and TCS look interesting. Among the midcap, I would put Hexaware as a dark horse which could give some good returns."

He advises investors to stay away from the banking and realty sector for sometime.

Below is the edited transcript of his interview with Sonia Shenoy and Latha Venkatesh of CNBC-TV18. Also watch the accompanying video.

Caller: Is it advisable to enter the IT sector in current market scenario? I have a time horizon of six- eight months?

A: Some of the frontline IT whether it is Infosys, TCS or HCL Tech have declined almost 15 to 18% over the last one month. The fall in the last week has been far sharper in excess of 10% itself. It is on concerns because bulk of the revenues of the IT sector comes from US. Almost 80% of IT revenue for the Indian off shoring comes from the US. In case of TCS, it is less. But, I am talking of broad brush industry average.

Valuations have corrected so has the growth outlook now has put a question mark. Two- three stocks look interesting from the valuation perspective and growth is not much of a concern at least for now. If there are concerns going ahead then, one may have to change the view. In the frontline, HCL Tech has fallen significantly almost 20% from the peak from the valuation point of view.

In the last few weeks among the front line, HCL Tech and TCS look interesting. Among the midcap, I would put Hexaware as a dark horse which could give some good returns.

Q: What is the future outlook for banking sector from a three- six months time frame?

A: I would probably stay away from the banking sector for three- six months. The fact that the caller does not have much exposure incrementally, there is no pressing need to take an exposure from three- six months point of view. It is based on two- three factors. One, RBI is very clear that they are not done with the interest rate hike. 

Bank stocks are going to take some kind of a beating if there is any further rate hike. Even if they do not take a beating you are not going to get any sort of meaningful appreciation. It is better to sit on cash than invest in stocks which will neither go up nor go down. Cash is going to be a king in the next few months. On a longer term horizon, yes, one can invest in good quality banks on declines. But given the caller's time horizon, I would say away from the banking sector.

Q: What are the growth prospects of the realty sector by 2013?

A: As far as real estate sector is concerned, it is still early to take a contrarian bet. The sector will first see significant dip before it rises back. It is for several reasons. One, is real estate cycle in terms of actual property prices has yet to play out meaningfully. Prices have declined 10-12-15% in most large markets of Mumbai, Delhi, Bangalore. Pune, Hyderabad, etc. But, there is still further room. Tighter the liquidity, more the pressure on property prices.

For a developers holding inventory, the value of the unsold inventory itself falls. Secondly, in a falling property prices scenario it is more difficult to offload that inventory only with a significant compromise on profits or maybe losses. That whole cycle is yet to play out.

Baring a couple of real estate companies most of them are neck deep in debt. Down cycle is not going to anyway help them on their cash flows. The sector is facing issues like, rising interest rate scenario, pressure on property prices, liquidity issues and huge amount of debt on their balance sheet. The sector has yet to play out the down cycle fully. It is early to take a contrarian call but stay away from it.