Seeing technical rebound; don't rush to buy banks: Vibhav Kapoor

The ongoing rally is more of a technical pullback after a steep fall, Vibhav Kapoor, Group CIO, IL&FS tells CNBC-TV18.Kapoor says this will be a year of global developments and that the market will be more influenced by global factors than domestic ones.He says it does not appear as though global markets have discounted developments like Fed stance on interest rates, strengthening of dollar, falling crude and now the Presidential elections in the US.On banks, Kapoor says the recent RBI directive will hasten the recognition of non-performing assets by banks and drive a faster clean up of balance sheets.And while banking stocks have fallen sharply, he says investors should not be in a rush to buy them. He advises waiting for at least a couple of quarters to get a sense of how big the NPA problem is and what the capital requirements are likely to be.  And while retail inflows into mutual funds have dropped of late, Kapoor says broadly domestic fund managers are still positive in their outlook on the market.He expects a recovery in the rural economy in the coming fiscal and auto is among the sectors he is looking to play that revival. Below is the verbatim transcript of Vibhav Kapoor's interview with Sonia Shenoy & Reema Tendulkar on CNBC-TV18.

Reema: What have you made of the pullback so far, 7,240 to 7,550, more to go according to you and what should be an investor reaction to what happened, the big fall and now there is a mild pullback?

A: I think this is just a technical pullback. The market has fallen sharply in January. As I had said in the last interview that this is a year of global developments and market is going to be more influenced by the global factors than domestic factors and all the uncertainties that we have talked about and which are there, China, the US interest rates, threatening of dollar, oil prices and maybe now US political issues in terms of the Presidential election, all those remain as they were. The issue is whether market has discounted completely all of these uncertainties. I do not think that has happened and therefore the pullback is just a technical pullback, otherwise the downtrend in the markets globally continues. 

Sonia: One sector which is completely rocked by the Reserve Bank of India's directives and that's the banking space. The RBI's directives to disclose more non-performing assets (NPAs), to make more provisions for bad loans etc has caused a lot of these banks to report higher provisions, weaker numbers. There are expectations of public sector undertakings (PSUs) to report losses this quarter as well. How do you approach banks at a time like this? Do you look for opportunities in private banks or do you just stay away from the sector for the time being?

A: This is a good development because this will hasten the recognition of NPAs and make balance sheets of the banks clean and therefore from investors' point of view you will get a much clearer idea as to how big the problem is in various banks. So it is a positive development but you need to watch out for the next two quarters particularly for this quarter's results to see what sort of impact this is going to have on balance sheets, further capital requirements of banks etc. Right now it's a sector to keep away from, wait for this quarter's result and then start taking some view and maybe in some cases you might need even to wait for next quarter results before you get a clearer picture of what the situation is.