Infosys, UltraTech, HPCL top picks; avoid metals, ITC: IDFC Sec

The pace of earnings downgrades in emerging markets has slowed down, says Anish Damania, Co-CEO and Head - Institutional Equities, IDFC Securities.

In an interview with CNBC-TV18, Damania said he expects inflows from both overseas and local retail investors to continue, something that he said would support stocks.

He also discussed many stock and sector strategies, saying his top picks were Infosys, UltraTech and HPCL.Below is the verbatim transcript of Anish Damania's interview with Mangalam Maloo on CNBC-TV18.Q: You had earlier said that markets will benefit as long as the risk on is intact. So the first question is, is the risk on still on or is it sell in May and go away?A: Risk on is still on. I was on a roadshow in London and most of the clients came back and told me that the money flow to the emerging markets is continuing. So, there could be some chances when there is very sharp movement in the markets upwards like most of the EMs have turned phenomenally well in this year that you might see some profit taking at some intervals but the risk on is still on. The pace of downgrades in the EMs has slowed down considerably and with the low inflation it is looking like that you can see the risk on -- the money flow will be back to the emerging markets.Also another point, which I mentioned is since the global growth is not that great, you are going to see that the interest rates will be kept low and the money flow will become a lot better into the equity markets and that is what is happening.Q: What do you make of the domestic institutional investors (DIIs) selling because last month itself the foreign institutional investors (FIIs) pumped in close to Rs 2,900 crore, the domestic institutional investors pulled out Rs 2,500 crore and that pace accelerate towards the latter half of the month itself in fact in the last six sessions itself, they have sold about Rs 1,600 crore, so what do you make of that?A: I wouldn’t give a lot of credence because over the past 24 months, we have seen continuous inflows and these were the largest inflows which we have seen for a sustained period of time. So, we are seeing some people taking the money off the table but I would say that is not a trend in my view and we probably are seeing a situation where the money in the mutual funds (MFs) is expected to rise and continue to rise. We feel that the urban income, which are rising, will aide that process.Q: Let us go down to stocks and sectors itself. ICICI Bank as well as Axis Bank came out with results last week, what do you make of both of them and between the two which one would you prefer?A: What we saw is that they revealed a real picture in Q4, which a lot of people were expecting that to come out with. In case of ICICI Bank, it looks like the pain is a little bit more than what people anticipated. In case of Axis Bank, the pain is little bit less than what people anticipated. So, probably if I were to choose between the two, though we have downgraded our rating in ICICI Bank, yesterday from outperformer to neutral because there are more chances that things are going wrong.In case of Axis, we have retained our neutral stance. So the way, we are playing the banking sector is partly through non-banking financial companies (NBFCs) and partly through the retail banks. So, we have turned overweight on the banking sector and I feel that over the next two quarters, most of the pain will be out from the market. We are just waiting and watching to see how State Bank of India (SBI) results turnout.Q: You were overweight on all the private retail banks as well but all of them Yes Bank, Kotak Mahindra as well as IndusInd are trading at closer to fresh 52-week highs in fact closer to the life highs itself, so is there more upside there?A: If you see life highs, which means that there was upside from previous times. I think the trend to watch is basically how the banks are dealing with the stress. So, Yes Bank has been able to deal with the stress a lot better and retail banks have stayed away from corporate loans, which is with the major cause of the problem and I think retail banks are doing significantly better. So to that extent, we will still say that we will continue to remain with retail buying. We are seeing more than 20 percent growth both in earnings as well as in loan disbursals. So there is no reason why we should be negative on those.Q: You were always bullish on Maruti. The results were also above estimates, what have you made of that? At the same time Eicher Motors came out with blockbuster sales numbers as well, what do you make of that as well?A: Maruti -- one of the biggest concerns which we had highlighted sometime back was the appreciation of the yen and the depreciation of the rupee, both of which have a big impact on Maruti's earnings.As a result of that, we were cautious on Maruti. Seeing Q4 results, I think it looks like the pain is not that large as what was anticipated by the market and the stocks have corrected. So, we have retained our outperformance stance on Maruti but I would still like to be a little bit more cautious, I would still like to see how they stack up in Q1 because the full impact of the yen appreciation will be felt in Q1.However, they have done extremely well on the product front, they have been able to sell higher realisation cars, the discounts have come down, so to that extent they have been able to mitigate but I wouldn’t be very bullish on Maruti, I would still wait.I have a minor bullish view on that. However, I am more bullish on Eicher Motors. I think the growth continues. Now, the growth has started coming even in the commercial vehicle segment. So, Eicher is a story which will continue and I remain bullish there as well more than Maruti.Q: In this result season, what are your top three picks as well as the bottom three picks?A: Infosys in the technology front is my top pick. The second pick is Ultratech. Third pick, which I would put is in the oil marketing companies (OMC) space, Hindustan Petroleum Corporation Ltd (HPCL) will remain my top story in the largecap space universe.In case of the bottom three, I am not so bullish on metals as most people are. So Tata Steel is somewhere there has been a huge run up and I think this could be temporary in nature. That is something which I will be bearish on. ITC is another name which I will be bearish on. Lastly most of my bearish calls is from individual stocks, so nothing much to talk about since we are in the big bull cycle, I would like to live in more bullish than bearish.