Bks may lead mkt rally soon; cautious on metals: Citrus Advisors

He prefers to stay away from the metals sector for now as it is a reflection of global economic movements.

Similarly, FMCG, he says, is a defensive pick and could be invested assuming monsoons will be good.Below is the verbatim transcript of Sanjay Sinha's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: Give us a word on banking stocks, we have seen a big rally in select private banks. Do you think that rally can extend?A: Most surely it can. My larger view on the market is that we are headed upwards and that can only happen with the banking and the financial sector leading this stage of the rally. If you look at the performance of the banking stocks as of universal group made up of both punlic sector undertaking (PSU) as well as the private sector banks, the current year itself has shown a very disseminate performance of both the segments. It is not without reason.The very fact that we now have a certain amount of recognition of the non-performing assets (NPA) issue in the private sector bank is something which is telling that in the system there is an issue. There is also a mechanism to address this. We have seen how Axis Bank came out with the disclosure though the market did not receive it with very positively but in the context of the economic recovery that India is witnessing, on a broader perspective with the GDP growth numbers being stable at 7.5 percent, the banking sector will be the bulwark of the rally in the market. So I am positive on the entire banking spectrum.Ekta: What is your sense on the metal space despite intermittent corrections that we have seen? Net-net it has been a positive year in terms of metals as well as commodities year-to-date (YTD). Do you think that the strength is going to get better and that could then see a turnaround for a lot of the listed metal companies?A: I am a little cautious on that. What I look at is the entire commodity space and then I divide that into two parts. One is the metal space, which is both ferrous as well as non-ferrous and the other commodities, which in our opinion, are more India focused commodity plays, the agri commodity such as sugar, the industry commodities such as cement but when I look at the metal space, both ferrous as well as non-ferrous, the short-term performance that we have seen in the stock price performances is more a reflection as to what is happening to commodity prices globally.We need to see it in the perspective of what is happening in the global economy. You cannot deny the fact that we are still not very convinced about the global economic recovery. There is also that nagging fear that we have at the back of our minds that in case this liquidity flow that is coming from the Central Bankers, if that tap is shut, what is going to happen to the markets.In that background, if you do not have a sustainable global economic recovery based on fundamentals but probably floating more on liquidity then you need to be very guarded on metals as a space. So when I look at commodities, I will say that the India focused commodity still holds promise but the metal space, one should be cautious.Anuj: What about pharma? Dr Reddy's comes out with numbers and these stocks have really destroyed wealth over the last one year whether it is the large cap pharma or midcap, certain midcaps have rewarded. But overall it has really been bad year for pharma companies. Do you see any kind of turnaround or would you advice caution on investing in some of these names?A: No, actually in the case of pharma companies we can continue to have a positive stance. This destruction of wealth that we are talking about in the pharma space is very near term in terms of the time horizon in which it has happened. Maybe at most over the last six months or nine months we have seen a lot of pharma companies correcting in stock prices but not necessarily because of the issues linked to the sector but more specifically linked to some of these FDA issues which have kept cropping up in each of these individual companies. We cannot deny the fact calendar year 2014 pharma index gave you a return of 45 percent.If you look at the performance of this space over the last two calendar years ever since the Modi government came to power in 2014 till now the top two sectoral performances are from pharma and auto. So, they have created a lot of wealth and this sort of intermittent phases in a particular sector when the stock prices correct, they go into a consolidation phase that is part and parcel of a market. But look at how the industry is structurally organised. Whatever is happening on the regulatory front is structurally good for the industry because if corrective measures are being taken now then that makes the industry more transparent, more compliant and therefore more investment worthy with a longer term horizon because nothing which was structurally in favour of the pharma industry has changed except for these regulatory issues which have dented their stock price performances.Ekta: Just wanted your thoughts about the volume growth that we have seen from FMCG companies this time. Asian Paints, double digit volume growth that it recorded this quarter. We have seen good performance come in from the likes of Dabur, Marico as well. Would you be a buyer for FMCG companies especially ahead of what could be a normal monsoon?A: My base case assumption is that we are going to have a good monsoon. With this assumption in place the volume growth that we will see in the FMCG sector is quite strong. At the same time if I am looking it from the portfolio construction point of view like I said earlier I do have certain apprehensions about what can happen to the global financial markets over the next 6-12 months. In that sort of situation suppose god forbid there is a sharp retracement in the global financial market our markets will also be caught in that retracement and we will also have to suffer certain retracement of our market levels.In that background you will need to have some exposure to defensive sectors and in that the FMCG would turn out to be a good defensive sector in which you can have an exposure. However if you look at a more India specific story on an India specific story we are going to look at a more enduring rally in the Indian markets and that rally is going to be lead more by the cyclical stocks and not necessary by defensive stocks.