Metal sector could be dark horse of 2007: DSP Merill Lynch

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Anup Maheshwari, Head- Equities & Corporate Strategy at DSP Merrill Lynch believes that the overall trend is to be externally driven based on the EM flows. He also feels that the market is seeing a betting on earnings growth to drive individual stocks.

 

DSP Merill Lynch is gradually investing money but  still sitting on some cash.It is looking at cement, mid & smallcap IT as well as private sector banks. Maheshwari believes that the madcap IT stocks' valuations are much cheaper than large caps.

 

The metal sector could be the dark horse of 2007 opines Maheshwari and he also states that both the large and madcap pharma looks good.

 

Excerpts of CNBC-TV18's exclusive interview with Anup Maheshwari:

 

Q: How are you feeling about 2007 after all that has transpired in the current calendar?

A: With every passing year of great returns, obviously the next year looks a lot tougher. I think 2007 for us, also is pretty much the same story where you have to ground your heels and look for good ideas. We are not playing this market for re-rating upside, we are just looking for good bottom up stock ideas and some good sectors where there is pricing power available and trying to pick and choose amongst that. So I think incrementally, we are looking at most of the returns coming through from earnings growth rather than re-rating.

Q: Do you think it will finally get focussed on to stocks in 2007 because the last leg of 2006 has been pretty much the Index beating most funds because small caps and midcaps have not performed to the extent that was expected? Do you think that will change around or has to change around in 2007?

A: Yes, there is always a certain extra return that you can get out of decent stock selection. I think hopefully we will see that coming through next year. I think the overall directional trend of the market is going to be largely externally driven based on emerging market flows in general. This is going to be the most crucial variable in terms of how our market does. Within that, clearly as fund managers, we have to try and build the best possible portfolio suited to market conditions. I still think there is a fair amount of value involved in bottom up stock picking and we may see that coming through next year.

Q: What have you been doing with the Rs 1500 crore that you raised in your small and midcap fund; are you largely invested or still lot of money to come in from there?

A: We are gradually investing that. We have told investors right at the start, a few months ago that we had invested over the course of the quarter or so. So within that process, we are going pretty much in that order. So there is some element of cash still sitting in that fund. But that's more a longer-term product; it was not really focused on how the market does in the very near-term.

Q: What have you been buying in that space? Could you aggregate some of the stocks that you have picked into clusters? Which sectors have you basically trend your guns on in the small and midcap funds?

A: It is very stock specific, not even sector oriented. We are still reasonably positive on some of the companies in the cement sector and IT. We have gone down the market cap chain there, to some extent private sector banks, which is another area that we have been trying to identify ideas. These are some of the key areas, some of the sectors that we are looking at.

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