Market may see new high, bet on rate sensitives: HDFC life

Yesterday, the Reserve Bank of India (RBI), in its annual monetary policy for 2012-13, slashed the policy rates by 50 basis points.

In an interview to CNBC-TV18, Prasun Gajri, CIO of HDFC Life says, the surprise rate cut has given the market some momentum. “Globally also we have seen a risk rally after the easing of conditions in Europe yesterday. So, I guess if that stays, we could possibly see a new high in the short-term, but it is tough to say really at the moment,” he asserts. He is betting on rate sensitives, especially financials. “I personally don’t believe RBI is fully done with the rate cuts as yet. I do believe there is a little bit more to come. Therefore, the rate sensitives will do well. So that will include financials. I would rather play the financials at some levels rather than just the auto space to go with the cycle of these rate cuts,” he elaborates. Also read: Nifty may see 5350, be overweight on equities, says Axis Direct Below is the edited transcript of the interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Also watch the accompanying video. Q: Is there enough momentum now in the markets you think to break past that 5,350 and probably scale a new near-term high? A: It is tough to say. But clearly the surprise rate cut yesterday has given the market some momentum. So, yes, probably that continues. Globally also we have seen a risk rally after the easing of conditions in Europe yesterday. So, I guess if that stays, we could possibly see a new high in the short-term, but it is tough to say really at the moment. Q: How exactly would you approach the auto stocks? They are showing a strong move today and we have Tata Motors, which is sitting at a lifetime high as well as we speak. How exactly would you approach that space? A: There are two basic factors driving these stocks. Obviously, the rate cuts would help the auto sector. That is positive, not necessarily Tata Motors per se because that’s not a domestic story anymore. But at the same time, one would be wary of a little bit of the slowdown in growth in India and what impact it has on the auto volumes. We have already seen some slowdown on the two-wheeler side. Now, does that continue? Does that really change? Does that extend to the four-wheelers? Does that extend to the CVs? It’s a difficult call to take. So, therefore, at the moment, they are being driven by the momentum of the rate cuts. Once that subsides, one call will have to be taken in terms of what kind of growth we really auto volumes going forward. That is one part. Second part, I guess in some of the stocks, the export story or the overseas story is a much bigger story than the domestic story. On that, the call is very different, local macro is not driving that. As long as the sales numbers every month keep coming out to be above expectations, these stocks will continue to do well. But again there one will have to be wary because the global growth again could slowdown. There is an issue around China, whether there will be a soft-landing, hard-landing or whether there will be a significant slowdown there, whether US really maintains the current growth momentum. So, there are a lot of various factors going around in the auto sector. But in the short-term the rate cuts is definitely helping the sector. Q: What would you bet on then? One would think that the autos would be the best beneficiaries of this downward rate scenario. What would you bet on rate or no rate? Generally, which is a sector that looks positive? A: I would continue to bet on the rate sensitives. I personally don’t believe RBI is fully done with the rate cuts as yet. I do believe there is a little bit more to come. Therefore, the rate sensitives will do well. So that will include financials. I would rather play the financials at some levels rather than just the auto space to go with the cycle of these rate cuts. Q: Ambuja Cement and ACC come out with numbers tomorrow; both of them are showing gains of nearly 3% odd. Are there any thoughts on the cement space because there are reports doing the rounds or the brokerage reports doing the rounds and they do expect a better FY13 as oppose to an FY12? A: Cement to me is a good story. Though I would not say the stocks are cheap by historical standards, but the fact that the existing asset owners are unlikely to face significant additional capacities in the next two-three years. It’s going to take a longer time for additional capacities to come through, to my mind atleast four years. The cost of putting up of that capacity has gone up. So, in the medium-term, this existing assets owners, cement is something, which you can’t import, will probably make a good margins and good money as we go along. So, cement to me looks like an interesting sector.