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Interviewed at ET Now: My take on Defense, Auto and Large Cap IT

I was on ET Now today, and I spoke of a few things that might be of interest.

1. Defence stocks are a longer term bet:

It may not come in the short term but there are two big bets here. One is that defence expenditure might come equal or more in the budget. Another thing is that they are opening up a little bit. So short-term news is there but longer term, the fact that the sector is opening up and it has not opened up like forever is probably a good sign. A lot of good things might happen.

I probably weaselled out a little here. But the sector is very interesting, with BEML, Bharat Forge, BEL and the like making for higher market cap plays. Smallcaps will

2. Crude makes Auto look good, Agri-Chems are doing well, not touching Housing Fin

Two points here:

Before 2007, we saw 30% correction once every two years. So a 10% correction is fairly normal for Indian markets. The fact that we have not had a 10% correction since September 2013 means that it is just out there, waiting to happen sometime. That would be healthy. We are not overpriced, but a 10% correction is what should happen to markets every once in a while, at least to Indian markets. I think we are in abnormal period of low volatility. So this might just be the beginning of some volatility.

and

One of them is the auto space. The rubber and the tyre manufacturers are being helped with crude. We are trying to find some good entries into that space. We have found a small cap two wheelers and three wheeler tyre manufacturer in TVS Srichakra. It has run up quite a bit. We still feel that there is some move left in that stock. We still hold Apollo. There is some exposure in that sector.

We are looking at agrochemicals which seems to have done quite well. PI Industries and Bayer Cropscience have done more than 10-11% in the last month. They are moving, starting to show some momentum. In a downturn, signs of upward momentum gives you stocks that are really strong. That is why we would like to pick some of those stocks.

3. HDFC Bank is good, But we don’t expect Banking to Outperform

Interest rates for all practical purposes have come down. It is just that their credit is still not growing.The banks are able to borrow at 1% lower in the wholesale markets then they were able to do in June.

Today Bank CD yields are 8.2% versus 9.2% in June. Banks have reduced their deposit rates.In the short term, their margins may increase, but credit growth is not happening. They are not able to reduce. They are not willing to reduce their credit rates. This actually points to some kind of incongruency. I do not like this kind of thing that says well everything is positive but credit growth is not moving.

4. We do not expect great results from Infy.

I do not expect a lot of good things in the results. At best, I expect that Infosys might actually be a better performer than TCS, WiproBSE 0.56 % or an HCL Tech. That is just expectations based on what we have been hearing out there. In the longer term, we want to see more efficiency from these companies, and for them to be more relevant.

5. Auto attractive after fall in crude prices.

The crude fall is really helpful in giving us a sense of whether this is the right time to pick up auto stocks. They have corrected a little bit. Some of the stocks we like are M&M for instance. It is still in a mode that says it is not overpriced.

Disclosure: Many of these stocks are in the Capital Mind Premium portfolio. This is a real portfolio where we buy a small quantity of stocks, instead of providing “recommendations”. If the stocks go down, we hurt. The portfolio has a CAGR of over 130% since December 2013.

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