There is good upside to look for from these levels in market: Sethuram Iyer, Daiwa Asset Management

In an interview with ET Now, Sethuram Iyer, Chief Investment Officer, Daiwa Asset Management, talks about the market. Excerpts:


ET Now: Broadly till the budget, how positive or how neutral or how negative are you on the markets?

Sethuram Iyer: There is going to be a whole lot of news events which are going to take us through to the budget and the RBI policy document. So that is something which we need to watch out for. The first news of course is going to be the political events which are going to pan out in UP and then of course you have various other news events like the inflation numbers which will give a better direction where RBI is going to head and then the budget and the RBI policy document as well.

ET Now: What is it that you are giving out as an investment philosophy right now?

Sethuram Iyer: A great deal will depend on what kind of earnings are we looking for for 2013 and 2014. Now these are 2 numbers, but when you really look at a country which is going to grow at let’s say 7.5% over the next 2 years, I believe that the markets are going to be up over the medium to long term.

So, one has to play this market with really a medium or long-term view and there is definitely a good upside to look for from these levels. So, this is the time where one would like to stay invested and keep watching the volatilities and keep playing. This is also becoming a bottom up market where one has to be very stock specific in terms of where to put your money rather than going by sectoral picks or any kind of thematic place. This has to be a bottom up market.

ET Now: What is the call on autos?

Sethuram Iyer: One needs to be very selective. The 2 wheeler is likely to be a little bit subdued because we have to watch for the demand and off take numbers which come through over the next few months. That is we have to watch the performance there.

ET Now: What is the view on capital goods?

Sethuram Iyer: We have been watching very strong moves from the governmental side to boost up these sectors. So that is something which is very positive and one can expect some more activity happening from the governmental side. We have seen very significant action taken on the coal front. We have seen action taken on the movements in relation to the power sector projects coming up. So lots of activities happening there which is definitely a positive. The second fact is that if rate cuts are there, this is definitely going to be a beneficial for this sector as a whole because project costs are going to get beneficially impacted.

ET Now: What are your thoughts on IT?

Sethuram Iyer: The conflict always comes in such market conditions whether you should move away from defensives and move into more of a high beta area, but then what happens is like say IT is a sector probably which would continue to perform reasonably well because the rupee has not appreciated so strongly that they would get impacted in terms of rupee revenues and this is a sector where one really needs to wait for the uptick to happen in terms of business flows. Now business has been a concern in this area, but as soon as there is some traction there, I believe this sector can still do well, but this is not a case where one would go grossly underweight into this sector.

ET Now: Anything specifically from the broader markets that you would be liking right now, especially some of the policy sensitive sectors?

Sethuram Iyer: One needs to wait and watch because lots of policies could be contradictory. Budget with a fairly large deficit is not going to be great for the interest rate sensitives. At the same time, monetary easing which is on the cards could be very beneficial. So there are positives, there are negatives. One needs to wait and watch it as to be weighed properly and in the proper context, one needs to take a call on this.

ET Now: What’s the view in banking, PSUs versus private?

Sethuram Iyer: Private banks definitely look better in terms of their structuring. They seem to be doing better in terms of nonperforming assets. PSUs did throw up some surprises in terms of nonperforming assets in some of the banks, but overall I believe, yeah, the private sector looks better than the public sector banks. Of course we have to see how much of capital infusion happens during March because there has been a lot of talk about significant monies flowing into the banking sector in terms of capital infusion.

Now, since it is going to be a divided infusion with the government coming in with some of the money and the insurance category coming in with some money, we need to wait and watch how it happens and that could throw up again some surprises and this thing. One needs to be a little bit cautious because what happens is there is a favourable scenario coming up with monetary easing likely to happen. If there is a CRR cut, it would be definitely beneficial for the banks and rate cuts also are going to be beneficial down the line, but structurally I do not see much happening because credit off take is definitely picking up, but not at the pace at which it should be in a busy season.

ET Now: What about real estate then?

Sethuram Iyer: Real estate is a sector which is always what you call a very volatile kind of a structure, but one needs to really wait and watch because offtake has not been as great as one expected. There is subdued demand because the offtake has not been there for quite some time. When it is going to take place and at what prices, it is going to happen, that’s going to determine how good the sector is going to do for the rest of this thing. Otherwise it is neutral as of now and I do not see anything that should push it up to the levels, which we have been seeing. Yes, interest rates are definitely going to be a positive. If they come down, housing loans are going to come down. There is going to be a little bit of assurgent demand because of that factor alone.

ET Now: Ferrous, nonferrous, would you take any exposure to any of these names or any of these themes?

Sethuram Iyer: Yes. Selectively nonferrous looks a little better than ferrous at this point of time. Ultimately this is something where the determining factors are the global demand and consumption factor from China, which is going to determine how this whole sector moves. We are looking at a slowing down in China, which might mean stability in terms of both ferrous and most commodities. Now if that happens, then this is going to be a steady period for this sector as a whole.

ET Now: From the broader end of the market, is there any pocket that you believe as a theme could do well over the next 6-12 months? Anything that you may be taking exposure to?

Sethuram Iyer: Not really. This is a market which would move up or down as a whole. It is not going to be confined to any specific sectors because the favourable factors are going to impact all of the sectors of the economy. Having said that, I believe that this is a time where one has to look more keenly at the infrastructure space because that’s where the real action is going to come if the government is going to get more serious about taking the economy forward. So that’s one area where clearly one needs to really focus on. It is going to be a completely bottom up market and it is not going to be like sector specific. It is going to be stock specific.