Mkt in consolidation phase; like midcaps: Birla Sun Life

“Stay with good quality mid cap names as they are likely to benefit the most once the investment cycle turns around,” he adds.Below is the verbatim transcript of Sashi Krishnan’s interview to CNBC-TV18’s Ekta Batra and Anuj Singhal

Anuj: Does it look like the shallow correction is over, market is back to winning waves and what is the best way to play this market?

A: The market is moving into a consolidation phase and if you go away from the Nifty a lot of stocks actually corrected quite significantly and therefore there is opportunity in this market. But a couple of things have actually been in favour of us. One is the fact that the view on interest rates clearly is that rates will soften over the next couple of months. Whether the policy rates will get cut immediately in December or they will get cut in February is a matter of debate and we will have to take a call on how the RBI looks at it.

But I think a lot of things are going right on interest rate front and we do believe that interest rates will soften quite significantly which is good news on a large number of fronts. One the fact that lower interest rates is very good for the investment cycle and you will see the investment cycle returning much quickly.

Secondly it is going to have a very positive impact on both the current account deficit and the fiscal deficit. So if you look at the fiscal deficit for example lower interest rates broadly coupled with the fact that you have got lower oil prices, would mean that you will land up with something like 4.5 percent fiscal deficit for the current year. You could actually even land up with a current account deficit of something around 2 percent. So the virtuous cycle seems to be coming back which is good news and therefore the markets did see to take a pause but my own feel is that there will be interest that will return into interest rate sensitives and cyclicals over the next couple of months which will bring the market back into momentum.

Ekta: How would you position yourself in the banking space now?

A: We are taking a view that interest rates will come down and interest rates coming down is in our opinion very positive for the banking sector. Therefore we are incrementally buying into the banking sector both into the private banks and into the government owned banks.

Infact the state owned banks got significantly beaten down given the fact that people had concerns on asset quality. Infact if you look at this quarter, asset quality still seems to be a concern. If you look at some of the results that have come out, it is not that asset quality worries have gone out completely, but if interest rates come down significantly what will typically happen is that it becomes an up cycle for all these banks and you will see improving asset qualities over the next couple of quarters. So we are taking exposure into the banking sector both the state owned banks and the private banks.

Anuj: Frontline IT has corrected 12-15 percent, in certain cases even higher than that. Good time to get some of those stocks back in portfolio or would you wait for more correction?

A: If you look at the immediate correction it has been because of this quarter results. Except for Infosys which was more or less in line with consensus estimates rest of the IT results seem to have disappointed marginally and that is one of the reasons why it has corrected. But one of the reasons why this disappointment was there was I suspect because there was over expectation in terms of what they could deliver.

The other problem is that we are seeing a slowdown in the global economy, we are seeing in recent times both Europe and to some extent Japan slowing down quite significantly and obviously this is going to impact some bit of outsourcinag. But value will start coming back into IT after these kind of corrections, with a 15 percent correction some of the stock prices you will see value coming back because the long-term story still remains intact and as an outsourcing destination India still has got tremendous potential. Whereas we haven’t reduced our exposure significantly we have not been increasing exposure, we will wait for opportunity to get in.