Expect market to consolidate before going higher: Arvind Sethi, TATA AMC

In a chat with ET Now, Arvind Sethi, Managing Director and CEO, TATA Asset Management,

shares his views on the market as well as some sectors. Excerpts:

ET Now: The Nifty has moved from 7000 to 8000 in quick time. Do you think such a

stretched level is here to stay?

Arvind Sethi: When you have a bull market like this, it is difficult to stand in its way. While

the Nifty was at 7000, the word on the street was that 8000 looks remote and now 8000 is

here. In my opinion, the market will consolidate for a while, but it is impossible for me to

predict what lies next in the short term. However, the market certainly wants to go higher

and will go higher.

ET Now: Are retail participants still waiting to jump in or have they already managed

to catch the buzz?

Arvind Sethi: Until a few months back, retail participants were staying away and only high

net worth individuals had invested into the market. However, from the August data, it is

clear that retail investors are coming back and it is a huge positive. Mutual funds have been

the net buyers of equity and have turned the year's negative around into a positive.

ET Now: With the macros in place and GDP indicating an expansion, are you now

bullish on cyclicals?

Arvind Sethi: At the margin, we have already started shifting towards cyclicals, but we are

playing this through auto ancillaries, which will be beneficiaries of an economic recovery.

We also like the cement sector, because in spite of difficult supply-demand situation, it has

managed to do well in the last few years. Therefore, as infrastructure, roads and projects

take off, cement companies will be the obvious beneficiaries. Selectively, in terms of capital

goods, we tend to prefer smaller companies which are not so dependent on large projects.

The core of our portfolio still remains with the investment view over the next five years.

We believe that the companies, which are good and well positioned, will do very well as

India grows from a $2-trillion economy into a $5-trillion economy in the next 10 years.

ET Now: What do you like from the pure line auto names?

Arvind Sethi: Our preference would be more towards consumer discretionary plays in

autos. Since it is a question of whether you are overweight or underweight while managing

a mutual fund, you will hold those stocks anyway.

But if you look at the GDP data, the consumer side is yet to pick up. It was more the

investment side, which gave it a boost in the last quarter. We think that the real economy

will take time to mend and that does not mean that we cannot grow at 5.5% or 6% this

year. However, there is a lot of baggage from the previous years that has to be cleared out

and the real take-off will happen probably in 12 to 18 months.

ET Now: Energy stocks are sitting on monster gains for this year -- a stock like BPCL

is up 70%-80% already. Do you think all the good news is baked in?

Arvind Sethi: I am not permitted to talk about specific stocks. However, the energy sector

has done well, given the muted under-recoveries of fuel subsidy have pushed it up.

However, as a sector, it is still prone to interference from the government, in terms of

pricing. Therefore, as an investment pick it is lower in our priorities. I do not have a view

on whether the price today reflects all the good news.

ET Now: What is your sense about the health of PSU banks, with the asset quality

concerns and scams propping up?

Arvind Sethi: In a sense, the bad news on the PSU banks is out. The good thing is that the

Reserve Bank and the government are trying to improve the performance of these banks,

which however will take time. We do not like the public sector banks and we prefer to play

the banking space through private sector banks and NBFCs.

However, putting the recent upmove in perspective, four to five years ago, the price of

these stocks was exactly where it is right now. They had gone up 40-50%, have dropped to

a third of their value and then came back to where they were years ago. On the other hand,

well-run private sector banks have doubled over that period and hence, our investment

thesis will be to look at those banks wherein there lies an accretion to the investor, as

opposed to just a cyclical play which keeps the value of that company approximately where

it was.

Therefore, we still prefer the private sector banks to the PSU banks. As I said, if the

economy does well, then consumers will do well and the banking sector is a good way to

play the Indian economy story. Private sector banks will be very well positioned to benefit

from that.

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