Mkt not expensive; many good stks available: Birla Sun Life

Anuj: What is the call on the market right now, we have seen a big surge back to all time highs and newer highs after the surprise rate cut from the Governor, at these levels would you have conviction to invest fresh money or would you wait for any kind of correction now?

A: A correction is always welcome because it gives us an opportunity to get into the market. However, if you look at valuations and this entire argument that it is an expensive market, on a one year forward basis the markets are at 16 times one year forward but you also must take into account the fact that we are expecting earnings growth to double from their current levels of 9 percent CAGR to something like 15-16 percent. So, on a price/earnings to growth (PEG) basis, the markets are not expensive because if you go back into traditional theory, the PEGs of one or below one don’t make markets so you need to look at valuations in context of earnings expectation. So, we don’t think that this is a very expensive market and there are still a lot of opportunities to invest into this market.Ekta: One of the themes which are playing out are newer sectors which could benefit going forward and one of them is defence that we have seen it rise in the past one year. Can you give us a sense in terms of whether you would be confident enough to give a certain amount of your portfolio allocation to say the defence sector in anticipation of it seeing further upside?

A: I don’t think there are too many pure defence plays at this point of time in the Indian market in the listed space as such. However, there are a lot of people who are associated with the defence space who are either in the engineering space or in the electronic space and some of them have done extremely well. You have seen some of those results that have come out have been extremely encouraging. I think with increase in cooperation between India and US, defence is something that is going to take center space because there is lot more that is going to happen in this area.

Ekta: Would you be a buyer of couple of these quasi-defence names?

A: Wherever there is opportunity we would be looking to buy into some of those stocks.

Anuj: What do you think would be the leader of the market in 2015? What two or three sectors do you believer are going to be the ones where you should now focus on in terms of putting incremental money?

A: So, If you look at our own portfolio and how they are positioned and where we are getting in incrementally, the Banking, Financial services and Insurance (BFSI) space is one space which we still like quite significantly especially the largecap banks where we are there and some of the non-banking companies. Two, three reasons. One is that with a couple of these regulations that have come in which allows you to sort of reclassify project loans, the asset book stresses will come down significantly. If you look at this quarter, a drop in market ease as well as a possibility of interest rates dropping has led to treasury gains which will continue and thirdly credit which is growing at 10 percent will clearly get back to its 15-16 percent once the investment cycle revives. So, that is one area where we would put our money in. Two, the pharmaceutical sector because there is a big opportunity especially US Generics. Its almost a USD 70-80 billion opportunity and there are a large number of largecap Indian pharma companies that are well positioned to take advantage of that. So these are two sectors which will do well and finally the oil marketing companies because though you could have inventory losses for a couple of quarters, with deregulation and consequently as we go into next year, cooking gas, kerosene all these getting deregulated, these companies will benefit significantly. So, these are couple of the spaces which we think will give us opportunities.

Anuj: One word on the midcap PSU banks. You have seen a big rally but doesn’t look like the numbers as of now support that?

A: Correct, so as I told you that most of our attention is in the larger banks where we do believe that a lot of these trends will play out. You will have problems in some of the mid cap banks as they try to get over their stressed asset portfolios, so yes we will be a little cautious over there.