Recommend an overweight position on auto stocks: Swati Kulkarni, UTI Asset Management

In a chat with ET Now, Swati Kulkarni, Executive Vice President & Fund Manager, UTI Asset Management, talks about some sectors and stocks. Excerpts:

ET Now: The earnings season has been mixed so far. It has not been as bad as everybody was projecting. Your take?

Swati Kulkarni: At a market level, the picture is bleak. There are certain sectors that have pulled overall earnings down.

However, some sectors like auto, FMCG and engineering have shown some triggers. Companies there have done well at least at the EBITDA level.

ET Now: Let us talk about autos. One side you have Maruti or some passenger car companies sitting at record highs. Tata Motors — a passenger car company — is sitting at a record low. In view of this, what is the best way to participate in autos?

Swati Kulkarni: From a cyclical recovery perspective, there are two drivers here. First, play through the CV players or companies who are supplying parts to the CV players. The second driver is a good outlook on the discretionary demand.

During the first phase of the recovery, one should go for the CV plays. One may look at the two- or four- wheelers in the the later part of the recovery.

The names you mentioned are not totally CV-driven. China is a bigger factor there. Besides, one needs to keep in mind that given the recent volatility and the local production trends, earnings drivers or worries could be different for different companies. That is why we always need to take a stock-specific view.

But generally speaking, auto is an early cyclical play. From that perspective, one should create early positions there if he/she is convinced that a cyclical recovery is underway.

At such times, it is advisable to have an overweight position in this space. Although I must admit that having a diversified exposure is a better strategy, I would still be overweight on autos at this point of time.