We like Banking, Auto, FMCG, Capital Goods and Technology: Kaushik Dani

"Market valuations are no more expensive and thus equity investors can start building a good portfolio at current levels," says Kaushik Dani Head- Equity at Peerless Mutual fund.

In an exclusive interview with Varsha Inamdar, Kaushik Dani further said, "We like sectors like Banking, Automobiles, FMCG, Capital Goods and Technology. We feel that slowing global economies would adversely affect Commodities and thus would avoid sectors related to Energy and Metals."

1 What is your view on markets and the factors that would drive these in the near term?Indian Markets, in past few quarters, have been digesting lot of negative news flows; both on the global as well as domestic front. India can no more be termed as expensive as various concerns have brought the market valuations down to reasonable levels.

With the Greek elections going down smoothly, some relief has come on the Euro front. However, this does not take away the issue of further bailouts and slowing global economy. We also have problems in form of poor domestic macros. We are currently in a scenario which is plagued by Low Growth and High Inflation. Fiscal concerns and lack of progress on economic policy-making is making things worse. We believe that Risk-aversion being a temporary theme, focus would be on domestic macros in near future. Thus, it goes without saying that any positive news flow on the inflation front and positive steps taken to improve growth would be the key factors to watch going forward.

2 Also, what are the key concerns an investor should look for?Key concerns on the domestic front would be the sticky inflation which is not coming down as fast as expected. We are also not seeing any material pick-up in the investment spend which can potentially spur up the overall growth. One also needs to be wary of the Euro debt crisis contagion on the global front.

3 What is your view on April IIP figures?Industrial Growth numbers for April were disappointing. IIP came at just 0.1%. This was below expectations of around 1-1.5%. Poor Manufacturing numbers and contraction in Capital Goods segment continue to push the growth numbers lower. Apart from the Consumer Goods segment, rest all categories continued to disappoint. On the positive side, with FY12 IIP ending below 3%, current year numbers should benefit on account of base effect.

Lower IIP and lower GDP numbers is a worrying sign. Monetary policy actions alone cannot revive the growth. One needs to quickly re-start the pending reforms and pass policies which would boost growth. Fiscal imbalance needs to be corrected and inflation needs to be tamed by addressing supply side issues. All this together would lead to better growth.

4 Do you think the RBI will initiate monetary policy easing in near-term?Monetary easing in form of lower interest rates also means that it can fuel inflation. This is the last thing that central bank wants at this particular stage. The biggest positive that we have seen in past few months on the inflation front is that core inflation has come down steadily. However, the headline numbers still remain sticky and above the comfort zone. We believe one can expect further softening of Reserve Ratios; which brings in liquidity and also improves growth. Repo rate cut can be expected only once headline inflation numbers soften on a consistent basis.

5 May inflation is at 7.55%. What is your view on the inflation figures?May inflation has inched higher compared to previous month. This was mainly because of higher Fuel and Primary Articles numbers. We feel that core inflation has stabilized at lower levels and this is a positive sign. Slowing global economies including China would put further pressure on Oil & Commodity prices. All this augurs well for our economy. This combined with better harvest can keep the inflation at manageable levels.

6 Which sectors are you bullish/bearish on?We like sectors that are part of the Consumption and Investment themes. We are a economy driven by domestic consumption and we believe that this theme should do well over the long run. India, as a emerging economy, has large infrastructure needs and thus the sector is likely to show good growth over long term. We also like select services which benefit from the outsourcing theme. With the reversal of rate-cycle, we also prefer rate-sensitive sectors. Thus, we like sectors like Banking, Automobiles, FMCG, Capital Goods and Technology. We feel that slowing global economies would adversely affect Commodities and thus would avoid sectors related to Energy and Metals.

7 What is your advice to equity investors at this point in time?Market sentiments have been weak; primarily on account of high inflation and poor macro growth. This coupled with volatile commodity prices and global uncertainties have kept investors on the back-foot. It"s only when things are not well in the near term, you get good opportunities to build long term investments. We believe in India"s long term growth structure and are confident that our growth would move higher in coming years.

Market valuations are no more expensive and thus equity investors can start building a good portfolio at current levels. It is important for retail investors to take the regular and systematic investment route for participation; so that they need not enter into the risk of timing equity markets. We believe this is a good time to build portfolio with a investment horizon of 3 to 5 years.