These 11 bluechips are on Motilal Oswal's buy list in 2014

He is also positive on PSU Bank of Baroda and expects the bank to perform well in Q3 earnings.

 Below is the edited transcript of Rajat Rajgarhia’s interview with CNBC-TV18

Q: What is the overall strategy for 2014 at Motilal Oswal? What are you expecting by way of overall returns from the market this year?

A: The core theme for the report is that we have seen the bottom as far as the growth is concerned and that was sometime during June to September quarter where the economic parameters, the corporate earnings growth had bottom. While the recovery is still very, very gradual, it is important to know which are the sectors which typically do well across cycles, which are the deep cyclicals where you need to put them on radar, but still may not put the trigger on rate and which are the sectors which have really not done well at all in across the growth cycles.

Between 2003 and 2014 we have seen 11 year period when first five years where fantastic growth and the next five years were decelerating growth, but during this period the corporate earnings grew 17 percent. Today we are at 8-9 percent growth mode, but we are quickly reverting back to 14-15 percent in another year or so. So I think this report basically highlights on how to look at across sectors between growth cycles and where should investors be positioned for.

Q: Mean reversion to 15 percent earnings growth is interesting. Would that mean that you all are now advising clients to get into investment mode and that in two years there is a fairly big harvest that you will get. What is the kind of return?

A: If you look at the market multiples, they are still at between 14.5-15 times which is something which always is okay or good to look at whenever you are looking at the growth to slightly pick up. At least the kind of earnings growth that we are modelling in, that should be the index return or the market return that investors should focus upon.

Rather than just making it a top down call it is lot more interesting to figure out which are the sectors where the earnings growth is always ahead of the market and even today when the market is so much worried about top down, valuations of those sectors or stocks are below their averages. That is where you will end up making money both in terms of growth outperformance and valuation reverting back to mean.

Q: What is your view on Yes Bank?

A: Yes Bank is a stock under our coverage. I do not know if I will it buy ahead of the numbers because that has been a buy for us now for quite sometime. This stock is a pure play whenever wholesale rates come down and growth picks up. This is a growth stock. Investors play this stock whenever they start getting very positive on growth. They have managed the last two years of this downturn very well in terms of first, moderating their growth and second, managing their asset quality very well.

If they are able to continue with this process which we think they will for another couple of quarters, so whenever the growth resumes back in the system their growth rates will again start outperforming the industry very well. The good thing for investors today in favour of Yes Bank is that the valuations today are nowhere factoring in the growth that can return for them. You should buy today, but you should not buy today for the results today or for a quick buck in the next one quarter. This is something that one will have to hold onto make money.

Q: What would be your top bets for 2014?

A: One of the stocks that we have upgraded now after quite sometime is HDFC Bank. At 14.5 times FY15 earnings, the multiple is lowest in the last 11 years for this bank. A 25 percent earning Compound Annual Growth Rate (CAGR) is not just the best in the banking, but also the best in the Nifty basket that we are forecasting right now. As we start seeing growth numbers becoming little better for the economy, this stock will deliver earnings growth in the form of stock returns. If you see any rerating happening in the second half of this year for the market, then this stock will participate. The base case returns that we are looking for HDFC Bank is 25 percent and that is a phenomenal return to look into a large cap. We are very positive on this stock now.

The second name that we have articulated is Infosys and Tech Mahindra. While Infosys has rallied now it again has a lot of catch up to do, because a 16 PE in an earnings upgrade cycle is something which will become a buying reference point for investors. Two years back this stock was Rs 3,400-3,500, today it is back at that same price, but the EPS has moved from Rs 150 to likely Rs 230 in FY15. That is again another large cap name which will deliver good return.

Third is Oil and Natural Gas Corporation (ONGC). Generally even if our bias for the PSUs have been lower in the portfolio and the next one year will be the period of adjustment in earnings for ONGC and should also be an adjustment in the stock price even if you keep the valuation same for the stock.