Strong PM will attract FIIs; bullish on pharma: Axis Cap

Mitali: How are you mapping the rest of the year for Indian market and where is it priced at right now?

A: The earning season has surprised largely in terms of margins which is not a great thing. Everybody likes to be surprised on sales rather than margins because that is really a forerunner of how things will shape up. But things have been good in terms of margins especially for the auto and exports. Earning season is behind us and I don't think next quarterly earnings will be much important than elections and what's happening around the globe.

As far as globe is concerned, off late there has been some tumult in the US. The US figures that are going fairly steady have suddenly become undecipherable from month-to-month and China always lags and so, you can't really base your stuff on what's happening in China.

The biggest question is the elections because this will be very important elections for us. It will make or break because the sort of crisis that we are facing, on the macro end while everything is troughed out whether you talk about peaking off of the inflation or you talk about troughing out of gross domestic product (GDP). We need a strong leader even more important than a strong party at the top.

Some of the leaders have already said that they are going to work very closely with the states so that's very good to hear because a lot of implementation is left at the state level. There are lots of low hanging fruits that can be done within the first 90 days or 180 days of a new leader coming together. So, there are low hanging fruits and all the fears like the media being against certain political parties, judiciary, everything comes into place when you have a strong, good leader whom everybody can trust. If we have that, there's enough unallocated money with the foreign institutional investors (FII) abroad to make Indian market go up and if you don't have that then well IT, Pharmaceutical, rest of it as you are aware.

Udayan: What happens between now and the elections because we still have a good many weeks left between now and the election outcome even before the onset of the election season? Do you see another major global move before that, before the Indian big election trigger comes into play?

A: It’s very unlikely that people will take either a very strong buy or very strong sell call on India just before the elections. These elections are so important for India at this particular stage that I don't think things are going to make so much of a difference unless there is out of the chart events which happen in the world on the downside.

Out of the charts on the upside, I can't think of anything happening as far as the globe is concerned because the only great news is the US doing a bit badly so that the QE taper does not happen but people are not going to put in money just because of that just before the elections. So, from now to elections it’s going to remain range bound and only when you know what is going to be the electoral prospects would people really start taking the actions in terms of – there is a typical cycle. First the asset plays move then banking moves, then consumer discretionary moves. You will have this playing out – industrials because of the capacity utilisation that goes up.

I think that sort of cycle will start moving either just before the elections or just after the elections depending on what people think in terms of a good leader coming into play. Until then, you will be stuck with IT, pharma. I don’t think everybody is adequately overweight on pharma because pharma as a space seems to be just one sector with actually quite a few animals put together and they are very different from each other and because they are not so decipherable on a company wise basis people don't put as much money as they could in non-pharma sectors.

Udayan: How would you position yourself in banks between now and the election outcome because that becomes so volatile; they lead big down falls in the market and again led the resurgence back in the month of February. Do you have a clear way of how to position yourself in that sector for the next two or three months?

A: For the last one year, banks versus IT trade has been the single most important factor for most institutional fund managers. What we have done in our model portfolio lately is to cut weightages across banks. Proportionately across all banks, we have kept a bit on one PSU banks not the largest one because valuations are simply so low. But, otherwise proportionately we have cut across all private sector banks also and the reason for that is in terms of we wanting to make enough space for pharmaceuticals, all other exporters like auto. So, I would be neutral to underweight banking now from an overweight position earlier.