Underweight on OMCs: Mirae Asset Global Investments

What is your view on oil marketing companies given the way that how crude has shot up from $82 to about $90 per barrel?

Rahul Chadha: We have reduced our underweight on the sector in recent times but there are not honestly too many plays to play the rising crude oil prices in India. The Indian public sector basically do not benefit from the entire pass through of the oil prices. So we continue to remain underweight on the sector.

What about the fertiliser pack?

Rahul Chadha: Clearly, there is significant policy shift from government to make sure that the sector stands on its own feet and we are seeing that coming in from subsidies which are now being paid in cash rather than the bonds and we continue to increase exposure to large well managed companies which have strong balance sheets and which can increase their capacities and capitalise on the huge opportunity in the sector.

What is your view on PSU and private sector banking stocks?

Rahul Chadha: Banking has done well over last 6 to 9 months and it's natural for the sector to take a breather. More so in light of the high inflation and the high crude prices and current account deficit, the sector would underperform or consolidate for next couple of months and as we get clarity on government’s borrowing programme for FY12 and the fiscal deficit from the next year, sector should perform from thereon because banking is the best play on the growing Indian economy and stocks are not really expensive over there. It is just a question of tough macro conditions for next couple of months.

What is your take on the demand that we have been seeing from the entire auto space? What do you prefer here?

Rahul Chadha: We like both the segments, there are 2 different segments. Tractors, utility vehicles and 2 wheelers are a play on the strong growth in the domestic Indian economy which is the rural economy where the demand momentum remains strong, per capita consumption of penetration levels are still very low and the luxury market globally we are seeing is booming because the discretionary spend is on a high. So we continue to like both the segments.

Of late, you have increased your exposure on some of the pharma stocks, names are Lupin, Cadila, Cipla, why are you buying pharma stocks at these levels?

Rahul Chadha: In a scenario where crude would be a concern for Indian markets, sectors like pharma and IT should hold on well. What is happening in pharma sector particularly is that we are seeing couple of big drugs going off-patent which opens opportunity for the Indian generic companies and what it also means is the big pharma companies were seeing the blockbuster drugs go off-patent looking to fill the gaps in their portfolios by time with the Indian generic companies who can supply various other segments where they are not strong in.

So pharma remains a multi-year opportunity. The penetration for western medicine in India still remains low at 30-35%. Domestic market is growing at a healthy 15% and outside India and US and Europe, there are maybe $80 billion to $100 billion worth of drugs which go off-patent over next 3 to 5 years.

How do you see fund flows revising from India to developed markets in short term? Is industrial activity has clearly bottomed out in that region?

Rahul Chadha: In the near term, developed markets let’s say over 3 to 6 months should do well and in emerging markets, there are markets which should outperform India because India becomes particularly vulnerable to high crude prices because of high current account deficit and what is slightly more worrisome is that large part of the flows which have come to India are essentially portfolio institutional investors basically.

We have not really seen the FDI number increase substantially. The net FDI number still remains at a $15 billion to $20 for last 3 to 5 years. So clearly just because of the vulnerability of current account, we are not going to see too much FII inflow coming in in Indian markets over next 3 to 6 months.