'Macro cues starting to stabilise; move out of defensives'

“Our main global backdrop is that the macro momentum is starting to stabilize. Over the last one month, whether it is indicators such as the US ISM, US jobs, US retail sales or industrial production, we are now starting to see some signs of stabilization,” she said in an interview to CNBC-TV18.

Due to this stabilization, Siva says investors should now look at moving into quality, but cheap, cyclicals.

From an Indian market perspective, Siva says that stocks like Sun Pharma , Lupin , TCS and ITC are expensive. Her top bets currently are Reliance , Tata Motors and Tata Steel .

Below is an edited transcript of her interview with Udayan Mukherjee.

Q: What is the overall global backdrop that you are working with right now? Do you expect liquidity to remain benign as it has been globally for the last few weeks?

A: Our main global backdrop is that the macro momentum is starting to stabilize. In February and March we saw a peak in a lot of the global macro indicators, and we saw quite a sharp slowing from March through to July-August. But over the last one month, whether it is indicators such as the US ISM, US jobs, US retail sales or industrial production, we are now starting to see some signs of stabilization.

Because of this more positive, or atleast this less negative macro environment, we are making a call to switch out of expensive defensives into both quality as well as cheap cyclicals.

Q: What do you hear when you talk to your clients right now? Are they adding a little bit more risk to their portfolio or are they characterizing this as just another risk-on rally which might fade if the global macro data worsens again?

A: There is still quite a lot of skepticism, mainly because of Europe. Our clients are still worried about Europe and there are also the concerns about China. The one good thing though is that at least some of our clients have listened to us and started adding a little bit of risk. We have seen about USD 8 billion of net foreign buying so far this month, and about USD 4 billion alone has gone into Korea, which in our view is probably the market that benefits the most if global macro momentum does stabilize.

Supportive of this view that macro momentum is stabilizing is also the fact that you have seen US bond yields rise from 1.4 to 1.8%. So there seems to be some asset allocation shift at the margin out of bonds into equities. But in an Asian context, the market that has received the most inflows over the last one month has been Korea.