Positive on banks, autos, realty: Bharati Axa Invst

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Speaking to CNBC-TV18, Prateek Agarwal, VP & Hd-Equities, Bharati Axa Investment Managers, said that he would still stay clear of technology even though they are trading at a discount. He is positive on the PSU banks space as they are cheapest set of stocks that one could get in this space across the globe.

Excerpts from CNBC-TV18's exclusive interview with Prateek Agarwal:

Q: In a couple of days, we'll hit earnings season and technology is not looking too good going into it. Would you buy it as a contrarian buyer right now or would you still stay clear of it?

A: We would still stay clear of technology; this one sector may get impacted because of the recessionary fears in the US. At this point in time, it would make sense to be underweight on this space. So yes, valuations are getting attractive. They are trading at a discount to the market valuations versus a premium earlier.

Q: In the light of the fresh data from the US, the economic data, how would you play rate sensitives - banks, autos and realty stocks? 

A: We would be positive on all of these sectors. PSU banks space as such is a cheap space in our mind. This is probably the cheapest set of stocks that one could get in this space across the globe. Autos have done nothing over the last one year, one big reason for that were the rate increases, which probably curtailed consumer spending a bit. So on these two sectors, we would be reasonably positive.

Realty yes, but versus realty, we would be a veering around to construction space. That again is a space, which is very interest rate sensitive. That is a space, which borrowers probably had 12-13% and if rates get cut, then those stocks get to benefit quite a bit.      

Q: What's your own sense of liquidity at this point of time? Over the last few days we have seen mutual funds and domestic institutional investments actually be a lot higher in terms of figures than the FIIs. Is that your sense for the better part of '08 that it would be more domestic liquidity driven or do you think '08 can also see those USD 17 billion kind of figures? 

A: In terms of overseas flows, we would expect similar kind of flows but to our mind this market would be sustained more by domestic money than by overseas money. We have the example of what is happening in China that would get replicated in India or should get replicated in India to our mind, as domestic consumers get richer, they would allocate a larger percentage of their monies to the equity market. May be through insurance, may be through MFs, but yes into the market. So I think it would be the domestic money, which would drive Indian markets.

Q: What about sugar? Do you think that there is an end to the long damp spell that sector faced? Would you be a buyer there and in power for that matter, since Reliance Power is on the anvil?

A: In terms of sugar, if one goes by the sugar cycle, we are still not out of it. The main trigger has been the Uttar Pradesh High Court ruling, which pegged the price of sugar significantly below the S&P. Now it is conjected to believe what would happen going forward, but as things stand today, in the sugar cycle until payment defaults happen by the mills, sugarcane farmers keep planting more cane and there is never a shortage scenario and the idea of a supernormal profit doesn't happen.

This would be a year of elections, all the cane payments would happen. People would plant more cane the year after. So from the supply side there is no issue. It is just that there has been a High Court ruling, which says lower prices for cane should be there versus Rs 135 odd, which the state has mandated.

In the power space, we believe, there has been a change in regulations and there has been a huge amount of wealth transfer into the listed space and I believe that that's the trend that would continue going forward as well, but at this juncture it would be different from company-to-company but one would have to look at the momentum of new projects versus what is already on the table. 

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