Check out: Anand Rathi's sectoral picks for your portfolio

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Check out: Anand Rathi's sectoral picks for your portfolio

Devang Mehta of Anand Rathi Financial Services gives CNBC-TV18 the sectors he will add in his portfolio.

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

After the bearish run we saw post the poor IIP number yesterday, Devang Mehta of Anand Rathi Financial Services tells CNBC-TV18 that he is looking to re-jig his portfolio.

"The portfolio at this point should be 50-60% into defensives like FMCG, pharma and IT and 40-50% in the high beta rate sensitive space like banks and autos," he said, adding that an investor should also keep some cash in hand so as to bank on opportunities to accumulate good quality stocks.

Below is an edited transcript of his interview with Latha Venkatesh and Reema Tendulkar. Also watch the accompanying video.

Q: Some buying which has emerged in traditional defensives like FMCG, a couple of pharma names and IT as well, but high beta banking names are on the losing side. What is the change one should make to your portfolio now?

A: The market is quite nervous and is waiting for policy action. It is almost desperate for some sort of reforms that the government should carry on at this point of time. So there is a lot sector churning happening at this point after the low industrial production data that the market saw yesterday. So a lot of people seem to be exiting the high beta space of capital goods, infra and something like banking, but I don't know whether it is too prudent to exit at this point of time.

The portfolio at this point should be 50-60% into defensives like FMCG, pharma and IT and 40-50% in the high beta rate sensitive space like banks and autos. Rate sensitives can fetch very good returns in one-one and half years when the rate cycle peaks out.

Q: Are you advising people to go into cash in anticipation of better levels shortly?

A: We advise to hold 25-30% in cash eventually because it is a very volatile market. Anything that has to do with the European situation or anything that comes into the Indian market is normally down by 2-3% any day. A 4-5% fall cannot be ruled out, so one should hold reasonable amount of cash to accumulate good quality stocks.

Q: You indicated that a part of your portfolio would also include banks and autos. Any particular picks over there?

A: We have always preferred the private banking space because we feel that PSU bakns have a lot of NPA concerns and asset quality concerns. But due to the correction that we have seen in private banks like ICICI Bank , HDFC Bank , IndusInd Bank , Yes Bank etc, I felt this will be a pocket of strength in the coming days when we may see a CRR cut or reverse repo cut somewhere in the next year.

So I think this space would tend to do well with reasonable return ratios as well as good return on assets. I think these banks will do well over a period of one-one and half year

Q: What is it that you are asking your customers to pick up outside banks for the long haul?

A; We also like NBFCs that operate in the rural as well as semi-urban areas, something like M&M Financial Services or Shriram City Union Finance . These would bear the fruit of rural India doing extremely well due to things like the national rural employment guarantee scheme.

With rising disposable income and farmers getting richer, this space is looking good. They are quite reasonably valued and the robust asset quality that they have and the incomes that this would generate would do very well for the longer term period.

Q: What is your buy list in the IT space?

A: In IT we have always favoured TCS . The stock was hammered a lot on the so called disappointing results in Q2 but TCS followed by Infosys would be our top picks in this space.