Focus on defensives; buy IndusInd, avoid autos: Expert

Given the kind of economic and political turmoil the country is currently undergoing, Dipan Mehta, member, BSE & NSE recommends investors to look at defensives. Mehta believes the market is now moving away from favouring cyclicals to defensives and stocks there could see more traction in the next few weeks.

Also read: Sky high Q3 current account deficit: What you need to know

Mehta advises investors to stay away from auto stocks considering the pressure the sector is currently facing. Though he sees good prospects in the sector from a long-term perspective, he is not ruling out any more pain to come for the sector.

On stocks one could look at buying, Mehta is bullish on IndusInd among private sector banks. He sees IndusInd continuing its outperformance for some more time and believes the company's entering the Nifty will get extra valuation for the stock.

Below is the edited transcript of Mehta's interview.

Q: The series gone by has been very lackluster. On the headline index we did not see too much of a cut but there was so much by way of damage in individual stocks. Do you think the April series will be as volatile and as debilitating for individual stocks?

A: That depends upon the newsflow which comes through in April. The market has an eye on what developments are taking place on the political front. If there is certainty that this is going to be the situation for sometime, then maybe slowly some confidence would come back. But if some of the minority parties again raise their head and make certain statements, then that will certainly damage the sentiment. So, on the whole, it is a bit difficult to call the market at this point of time. April will also be the beginning of the earning season for the March quarter.

Towards the end of the month, the market will certainly get focused on what quarterly numbers will come through and specifically IT numbers as they come through earlier than other companies. So, a lot of action maybe concentrated in the IT stocks.

The market is becoming very difficult to call at this point of time. Valuations are attractive but certainly, a lot of damage has been done to the sentiment on account of whatever the political developments are taking place. There are hardly any improvements taking place as far as the macros are concerned.

Q: Auto stocks are sitting at fresh lows. The auto index is at a six month low, how do you approach the names ahead of the auto sales numbers? Is there anything that you would buy at this stage?

A: No. Certainly the auto numbers are under pressure and we have seen a sharp deceleration as far as the volumes are concerned. So, there is no question of buying into this weakness because there are fundamental reasons why the industry is doing badly. The long-term prospects remain good, but we may see some more pain in the short-term. So, my sense is that investors should lighten up on the auto shares.

On the whole, the levels at which the market is and the uncertainties which are prevailing on the economical and political front, investors should get focused on the defensive sectors. That entire trade of going in from cyclicals to defensives is already underway. Over the next few weeks or so, it may further gain some more traction.

It is best to avoid the interest rate sensitives at this point. We had a Reserve Bank of India (RBI) policy which reduced the interest rate. However, the kind of statements that came out made it amply clear that unless there were further improvements as far as current account deficit (CAD), fiscal deficit, inflation are concerned, we could forget about any further interest rate cuts atleast in the short-term.

It is important that investors get into a capital protection kind of strategy and focus on companies which are delivering consistent results, have extremely high level of corporate governance and some of the defensive kind of stocks which have done well in the last year or so.

Q: Give us your thoughts on two stocks, National Mineral Development Corporation (NMDC) and IndusInd Bank that will be in focus on Monday as they enter into the Nifty. Between the two do you have any recommendations or even both if at all?

A: We are very positive on private sector banks. IndusInd Bank has delivered stellar growth over the past several years, especially after the top level management change which took place a few years ago.This outperformance of private sector banks should continue for some more time. So, it is a good development as far as shareholders of IndusInd Bank are concerned and maybe it may get little extra valuation because of the inclusion in the Nifty. That is one stock, which we are looking out for.

This time, its quarterly numbers would be interesting. It is one of the companies, which delivers numbers pretty early and sets the tone for the entire private sector banking space. So, I would be positive on the stock.