Gopal Agrawal, head, equities, Mirae Asset India, tells Krishna Merchant that investors should look at select bank stocks, as asset quality concerns still remain. Edited excerpts:
Are investors booking profits to invest in the Coal India’s initial public offer (IPO)? Do you expect the markets to correct in the near term?
Coal India’s IPO is not the only reason behind the decline in markets. Retail investors have been booking profits throughout this rally. It can be inferred from the net redemptions seen in the mutual fund industry since January. Profit-booking is happening at higher levels, as some of the largecaps are quoting at higher valuations.
Do you see improved demand for outsourced services offsetting the impact of a rising rupee for information technology (IT) companies?
We are positive on the IT sector due to strong growth in volumes. Corporate balance sheets in the US are looking healthy. After the economic downturn, businesses have started re-investing their money and improving their productivity. We expect this volume growth to sustain.The rupee has appreciated to 44 per US dollar.
The largecap IT companies will have much more lever to overcome the impact of a strengthening rupee compared to the midcap companies. I expect margins of the midcap companies to remain under pressure on back of a steep salary rise and high attrition rate.
Given the recent results of Axis Bank and IndusInd Bank, what is your outlook on earnings for the banking sector?
I expect banking sector to report a strong growth in net interest income for the September quarter. High priced deposits will be re-priced at a lower level and surge in lending rates will contribute to better net interest margins. Investors should look at selective stocks, as concerns on asset qualities still remain for some banks.