Bullish on banking, pharma stocks: Lalit Nambiar, UTI AMC

ET Now Dec 26, 2012, 01.57PM IST

In an interview with ET Now, Lalit Nambiar, Sr VP & Fund Manager, Head-Research, UTI AMC, shares his views on the market and fund flows. Excerpts:

ET Now: Firstly, the big picture. 2012 has been a year of volatility, the news flow has been tricky, but are you a bit surprised with the resilience the Indian markets have exhibited? When we started the year, the expectations were low, but as we wrap out, they are high.

Lalit Nambiar: Yes, there have been some elements of the market running away a little ahead of expectations, especially in the last few months. Possibly the action from the government, after a long period of inaction, has prompted that. Inevitably, India seems to be better placed than a lot of other parts of the world. So yes, there is a feeling among some investors, possibly even retail investors, of having missed out on something which was building up. To that extent a bit of a positive surprise, I would say.

ET Now: Your view on the kind of fund flows we have seen because there has been a lot of conviction from the FIIs which have been pumping money into the Indian equities, but DIIs are not equally convinced? Do you see a bit of a reversal in this trend?

Lalit Nambiar: That is part of the deal and part of it is from the fact that maybe time horizons are a little different. FIIs are willing to take a longer call. They are taking a relative call with respect to other markets they invest in, while in India maybe the horizons are a little shorter. They do not have the luxury of choice. They are possibly not as positive or optimistic as the DIIs are. It is a difference in point of view.

ET Now: For those who have missed the market rally this year and are now convinced that it is time to invest into Indian equities, where should they invest apart from UTI AMC?

Lalit Nambiar: In terms of equities and sectors, I still want to play a mix of sectors which have strong traction in terms of cash flows. We would still look at some of the defensives like pharma. The added benefit is that you have the rupee possibly supporting you. It is not that we have come out of the woods when it comes to our current account deficit situation on imports versus exports.

Apart from that, I would prefer to play to some extent banks and the rest would largely be stock specific. Look at companies where the competitive franchise is very strong, the business is in a position to leverage its leadership to push out smaller players even in a bad environment. These companies would survive. They have survived over many years and chances of them doing better in an adverse environment are higher. We would pick those companies at a broad theme level. Obviously individual companies would differ in terms of their ability to thrive in certain environments.

As a broad theme, I would look at sectors like pharma and banking selectively and select stocks depending upon how they stand vis-a-vis competition in the current environment where policy is still changing.

Â  ET Now: Focussing on the banking space, how do you view the valuation gap between some of the PSUs and the private banking names? Would you just purely be sticking to some of the large cap marquee names in the banking space?

Lalit Nambiar: It is a question of where the balance between asset quality and bank management initiative or bank management changes comes in with respect to PSUs. That is something we need to track because there is enough history to show that changes in bank management and PSUs make a big difference to how operational performance, asset quality etc play out.

Looking at a PSU bank, despite the valuation gap, you need to consider what has been the history of that particular bank in terms of maybe geographic, sectoral exposure or bank management. These factors actually make a big difference, while on paper it is all about the brand of the bank and its reach. These are practical matters which one needs to look at while looking at PSU banks.