Undervalued cap goods & infra good bets: Daiwa AMC

Excerpts from Markets Midday on CNBC-TV18 Watch the full show »

According to N Sethuram of Daiwa Asset Management, taking a calculated risk on the undervalued segments like capital goods, construction and infrastructure is a good bet. "However, take a bottom up approach because it has to be individual company wise, not a broad sectoral call," he added.

He further adds that defensives like FMCG and pharma are still a good bet, but valuations look very expensive.

Sethuram says that the current rally in the market is because of positive news flow from international markets, and better-than-expected earnings. "One needs to wait and watch how long the sentiment will last, but as long as the going is good, one should enjoy it," he advised.

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

Q: How good do you think it's going to be for us in 2012? Do you think we are going to reverse what we saw in 2011?

A: One has to wait and see because there is nothing really tangible on the ground. What we have seen so far in the year is based on a lot of sentiment becoming positive and a lot of money coming through FIIs, so these two factors has contributed to the market.

The positive sentiment is mainly driven by the hope that we are going to see a lot of financial easing by the RBI and also certain reform measures to be set in by the government. Now we have already seen the CRR cut and there is hope that there would be interest rate cuts coming down the line. How soon that will happen we need to wait and watch.

Meanwhile what has happened in terms of the quarterly earnings is that we started the year with very low expectations but the results so far have been generally inline or even slightly better in most cases. So that been again something which has been positive and driving up the markets. So how long the sentiment would last one needs to wait and watch. But as long as the going is good one should enjoy it.

Q: How will you play the market then from now on? Are you saying that the bottom has moved up for the market and stands at 4800 or so, or do you still look at this as a bear market correction and you wont go full swing in?

A: What runs on sentiment is very difficult to look at as if it's on into a completely bull market kind of mood. One has to expect corrections down the line and how strong those corrections would be would depend on how the mews flows are. What has happened is in the last two weeks we have had relatively stable news coming in from Europe, the international scenario has also been good, so that's also buoying up the Indian sentiment. So we have got a full lot of sentiments which are positive.

Now even a little bit of sentiment change can impact that, so one needs to be cautious on this market. I would say that one needs to take stock of the fact that markets have moved up and there is going to be a little bit of positivity continuing into February, but then at some point of time one should look at reasonable correction happening.

Q: Which sectors will you stay invested when the correction gives you a chance or even if it doesn't? Would you stay invested for instance in the capital goods and the IT space at current levels and where would you take profit when you see 5200-5300 for that matter?

A: This is a market which is been clearly divided into two or three segments. One is the completely under valued segments like the capital goods, the construction and the infrastructure space where the valuations look good even after this rise. Now that's where one can take calculated risk, but of course it should be on a bottom up basis because it has to be individual company wise; one cant take a broad call on across the sector.

On the other side, you have the defensives like the FMCG and the pharma where visibility is good, performances are good, but the valuations look extremely expensive.