Mkt to be bipolar until mid 2014, bet on defensives: IIFL

Below is the verbatim transcript of Prabodh Agarwal’s interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy. For the complete interview watch the accompanying video.

Latha: What is the mood looking like? We get this one day foreign institutional investment (FII) buy number, four days FII sell number; what is the overall mood you are picking up? Is this likely to be a time when FIIs will stay away till the election results are known?

A: We will come to know the FII mood during the course of three days of our conference. However, in the beginning what I can say is that the FIIs are taking a neutral view. They would like to wait for the elections to get over before taking a call to make further investments into India. So, I would say that the FII investments into India for the next three months or so should remain muted; not too much of buying or selling.

Sonia: How long will this bipolar nature of the market continue where IT and pharma names will continue to see traction and cyclicals will remain on the backburner? Do you think 2014 will also be a year where that trend may continue or given the fact that there is a possibility of a stable government coming into power and the investments cycle resumption, etc the later half of 2014 could see a pickup in some of the cyclical names you think?

A: We could see that these bipolar nature of the market continuing at least in the initial period of 2014. However, that is the probable question that investors are asking that when this bipolar nature will turn. We think it will be later half of 2014 when some of the investment oriented stocks like capital goods or industrials or financials which are focused on investment sectors or energy or materials could start seeing a pickup in their earnings and therefore more investor interest into those kind of names. However, until then I suppose investors should be reasonably exposed to the supposedly defensive sectors including IT, pharma and financials which are focused on the consumer sector.

Latha: Give us a sense of what you have made of the just concluded earnings season? Are you getting a sense that corporate India or at least the key sectors have put the worst behind them? Are we into an earnings cycle upgrade mode at all?

A: I would think so. The last few years have been very disappointing for the earnings and that has kept the market down. However, in 2014 or FY15 we expect that the economy has bottomed out and should see a pickup. Similarly the earnings growth after being in a single digit for most of the last six years should pickup and that should be led by the investment oriented stocks.

The consumption and the export oriented sectors are anyway doing well and will continue to do well in FY15 as well. However, it is the investment oriented sectors which should see a pickup and that should drive better earnings growth for the broader market and then that will lead these stocks to start performing vis-à-vis the consumption and export oriented sectors.