IT is a good play in very near to medium term: Rohit Agarwal, Kotak Life Insurance

In a chat with ET Now, Rohit Agarwal, Equity Fund Manager, at Kotak Life Insurance, says in near to medium term, PSU banks will do well but over slightly medium to longer term, it is the private banks which will perform well.

Edited excerpts



What is your take on the market? Does it seem like that the pain is behind us or do you think what we are seeing right now is at best a technical rebound?

We think it is a rebound which has happened today, has largely to do with the futures and options clearing which was due yesterday. The positions getting into this December series is pretty light. Having said that, we do expect the markets to remain volatile. We are certainly not calling for it to be the bottom. We believe that the markets will remain choppy in the near term, certainly till December 30. Even after that, you might see some choppiness depending upon what kind of steps the government comes out with and what kind of collections or the deposits which happens with the RBI. As things start to slowly get normal, that is when you start to see some kind of sanity coming to the markets and the markets starting to get some direction after that.

So sectorally, what adjustments are you making in your various schemes right now and considering the rebound that one is seeing in IT for instance or for that matter selectively pharmaceuticals as well, are you juggling your sectoral allocation any which way or is it still as is?

Well we have juggled a little bit here and there. The sectors that you mentioned like IT and pharma, of course, these sectors have seen some money coming including us where we have parked some money as relative beneficiary. Today itself the IT sector index is up about 4% to 5%. We do not necessarily believe that IT is a great long term play but in the very near to medium term, maybe IT is a good play because the earnings impact on IT is very little in terms of demonetisation and this sector itself has been an underperformance sector.

Having said that, the valuations in the IT sector is pretty reasonable where you do not necessarily expect a valuations de-rating to happen. There may be some earning cuts which may happen going forward largely because the quarters which are supposed to be reported by the IT companies do not necessarily give us the confidence that they will be beating the market expectations.

There is also an added overhang of a probable some kind of protectionism which might come in the US that maybe the reasons which may keep IT in check in the medium to longer term. But for the short term where the market is may be at the moment short of ideas, the relative money, the smart money is moving into IT and pharma more we believe as a parking space rather than a long term story of earnings and valuations.

So you do think this rally in the pharma space and the IT space is sustainable but what about the banks, how are you reading the banks? You have talked about demonetisation, obviously that is having an impact on the banking stocks, how are you reading that space and do you have any preference between the PSBs and the private banks?

Yes the banks overall we believe are a beneficiary in the medium to longer term of the whole demonetisation process. If you look at the cash to GDP, in India that percentage is about 12%. In most of the emerging markets, that number is almost half. So it is obviously very good for the economy to move into that direction where cash to GDP goes down and what happens when cash to GDP goes down? Basically, people start transacting more with banks. People start using more avenues which is digital to transact.

There will be more cheques, more IMPS, more RTGS, more NEFTs of the world. All of that is beneficial to the system as a whole. Between the banks, we currently have a higher overweight position on the private banks and we continue to hold so. The logic that we are trying to use here is that whichever banks have better technology, have better capabilities and better understanding and better nimble footed to go out and reach the market and take the market share are the ones which will benefit over medium to longer term.

The public sector banks will also benefit in the short term because they have a plethora of deposits which have come to them plus there will be a lot of treasury gains that will accrue to them that all will be used to take care of some of the asset quality issues that they may be having in the near to medium term. But we believe that over slightly medium to longer term, it is again the private banks which are more nimble footed and which have the capability to go out and take business which will be better for the investors in the long term.