2012 maybe a year of outperformance by high beta stks: UBS

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2012 maybe a year of outperformance by high beta stks: UBS

In an interview to CNBC-TV18, Mahadevan said that Indian market looks promising ans is expecting Nifty FY13 earnings per share (EPS) at Rs 400. On a very optimistic note, he said that 2012 could be a year of outperformance by high beta stocks.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Well, 2012 started with a bang and while there are experts scared of another downturn, many are still building hopes on India. Suresh Mahadevan, MD and head of indian equities, UBS Securities is one betting big on India.

In an interview to CNBC-TV18, Mahadevan said that Indian market looks promising and is expecting Nifty FY13 earnings per share (EPS) at Rs 400. On a very optimistic note, he feels that 2012 could be a year of outperformance by high beta stocks.

Mahadevan is hopeful that government is likely to bring in reforms like the much-awaited goods and service tax (GST) after the state elections.

Stock specifically, he continues to be positive on BHEL and advises to buy on decline even though its December quarter performance was very disappointing. He feels that the turn of monetary cycles is likely to aid sensitives as he prefers ICICI and Federal Bank .

He is underweight on IT as the sector is likely to underperform in 2012.

Here is an edited transcript of his comments. Also watch the accompanying video.

Q: How would you recommend investors approach BHEL?

A: Clearly I think BHEL, L&T and stocks like these tend to do well in a bull. Clearly BHEL's results have not been great and the concerns are pretty well known, but the stock has also de-rated quite significantly. Actually our analyst is quite positive on BHEL at this level primarily because our base case scenario is of an economic recovery. Therefore, for the medium term we are still recommending BHEL.

Q: Are you working with a price target as well on BHEL or on NTPC ?

A: As I said, we are positive on both. For BHEL I think we have a price target which gives over 50% upside from current levels because I think clearly the stock price has de-rated significantly. Especially in the last quarter, it kind of fell down with the market and probably may have led.

Q: Just to switch back to your market call, your most recent note indicates that you are going more aggressive or rather preferring high beta at this point. What is it that you expect to see, that individual stocks will now start showing you much stronger gains or do you think the market itself has much more potential from 5200 onwards?

A: I think couple of things. One is clearly with the CRR cut we are seeing the monetary cycle turning which I think is a pretty important data point for the market. That is also supported by lower readings on the inflation etc, so that is number one.

Number two, clearly we ended 2011 with a fair amount of pessimism and disappointment. My sense is 2012 given elections get over very early probably in the first two months and by first week of March we have the results etc, that election over hang is over and with respect to result the government at least can focus on business and make sure that 2012 is not a repeat of 2011 in terms of lack of progress with respect to the various reforms.

So, maybe at the margin both these things are quite positive. Of course the rupee appreciation also helps in terms of assuring up sentiment I guess. Clearly flows are been positive. My sense is that 2012 given we ended 2011 in a fairly pessimistic note this  promises to be a little better.

From risk reward perspective it's probably better to be long in 2012. But again Indian market has shown us that it is always about specific stocks and to certain extent about specific sectors. From that perspective we think given a lot of bad news has been priced in by late last year and we've had a little bit of rally in the first three weeks but still things are way below that they were.

Its time to go for some high beta names because 2011 if you look at it was about playing it safe, people invested in ITC or HUL or even the HDFC Bank, the IT services all that kind of outperformed. 2012 is going to be perhaps different with maybe sectors like infra, real estate, maybe some of the banks selectively doing better. That's the kind of call we are making.

Q: How much of the gains of 2012 could be front ended because going into the year the call was that we'll probably see improvement in the market in the second half. However, in the first month itself we have got a 10% rally, so how much of it might play out in January-February before the budget not leaving too much for the rest of the year?

A: For the market to decisively move up from here you need some level of policy action. That probably is budget and afterwards which is why I said the post election phase looks better for the government and by then you would have a much clearer view on inflation in terms of a few data points of whatever sub 8% or whatsoever.

Also perhaps the rate cut in march in the RBI policy meeting, so for January-February we are in this range of plus minus 5% from here but beyond that is when things may start looking a little bit more interesting. But sometimes the market has the ability to discount these a little earlier, so we will have to wait and see but generally in 2012 I am more optimistic.