Here are P Phani Sekhar's stock picks

In an interview to CNBC-TV18's Reema Tendulkar and Prashant Nair, P Phani Sekhar, Fund Manager at Karvy Stock Broking shared his reading and outlook on the fundamentals of the market.Below is the verbatim transcript of P Phani Sekhar’s interview to Prashant Nair and Reema Tendulkar on CNBC-TV18.Prashant: Your thoughts on Bharat Financial and micro-finance companies. So, what is going on, suddenly people have realised that things aren't as bad as we thought, one of those things or something else?A: I would think that to begin with investors overreacted. The situation was quite difficult in the first few weeks for reasons that we all can appreciate. But beyond that by the end of November, the collections rose dramatically except certain pockets in western Uttar Pradesh or Vidarbha where things continue to be a little sticky there also things are improving.However, some of these stocks were beaten down like Satin Creditcare Network Limited or Bharat Financial were beaten down very hard and to that extent it is only sane now that investors realise that the damage might not be as severe as initially envisaged and over a period of time. So, earlier the question that was predominant in investors mind was what would be the write off in terms of under recoveries. Now the question is how quickly can the growth come back because we should not lose sight of the fact that this industry pre-November 8 was growing close to anywhere between 75-90 percent per annum. Now that growth rate will in all probability come down to around 30 percent, which is still healthy. So, investors are now beginning to think about growth away from under recovery and that is always good. So, that explains to a large extent the smart recovery that we have seen in microfinance stocks.Reema: How worried should we be about the December auto sales numbers and ahead of that would you recommend some long term investors selling any of the auto stocks because the numbers could look quite weak?A: The numbers are bound to look weak especially two wheelers but more worrisome is the medium to longer-term and the longer-term trend in auto. For example the other day RC Bhargava of Maruti Suzuki said that he believes that the ownership of aggregators in the car sales for over a period of time would substantially increase. Now for any longer-term investor in auto or for a four wheeler stock that is more worrisome than the temporary or any temporary loss in demand over the next one or two months. So, I would like to look at the more medium to longer-term picture. There are more worrying signs for four-wheelers compared to what the temporary market losses might be for some of these companies.Prashant: Where are you seeing opportunities? What are you doing in your PMS, without naming names if you can give us some flavour?A: Before the demonetisation, we were quite bullish about consumers and we see no reason why that stance should not continue and there are 2-3 very strong reasons. One is as is widely expected tax rationalisation is bound to happen now very fast. So, very large consumer companies that are full taxpaying when they start paying 25 percent assuming over three years is going to lead to significant amount of growth on the bottom-line.On top of it if personal income tax rates go up that is again another booster. Let us not forget the seventh pay commission and the other follow on impacts it will have in terms of wage increases all over. So, all these factors were there initially also because of demonetisation investors took an extremely bearish view of this sector. Maybe for the next two months or maybe 3-4 months things will not look upbeat. But for someone investing for 3-5 years a large part of this is transient and we would like to take advantage of 10-15 percent decline in stock prices and accumulate these stocks. So, all the discretionary as well as the consumer staple names.Reema: Did you take a look at some of the smaller IT companies, the likes of RS Software, Saksoft, D-Link these are the ones, which have done well since demonetisation.A: Some of them have done well because they have specific technologies, which investors believe would ramp up very fast. But having said that, the challenge remains with companies below a certain size in IT whether products or services, which is how quickly and how efficiently can they scale up and that is where we have seen consistently companies fail to deliver. So, you have a litany of midcap and smallcap stocks over the last ten years that failed to scale up apart from 3-4 names. So, that being the central concern we continue to stay away from a large number of midcap and smallcap. Maybe some of them will do well over the next 3-4 years but that is the price that you pay for prudence.