Rally in financials next? Allocate your portfolio | Economic Times

We might still see some kind of run-up in the banking stocks. Another 10% run-up is still warranted, says the VP-Equity Advisory, Motilal Oswal Financial Services. FIIs have been pumping in money in the market but do you think we will see signs of fatigue set in sometime soon or will the rally continue unabated?This time, instead of polarisation, we have seen a broader-based rally and what was lacking was financials. This was deeply discounted vis-à-vis the markets. The Nifty is just 5% away from its all-time high. We still see underperformance by Bank Nifty by around 25% odd levels and the valuations are quite justified. This quarter, most of the private financials as well as the PSU banks like SBI, reported decent numbers than what the Street was estimating. We might still see some kind of run-up in the banking stocks. Another 10% run-up is still warranted. The valuations are quite cheap and we have got a lot of interest from the investors as well in the financial space. The market might continue to run up but now this rally might move to the financials. Do you believe that betting on some of the marquee names within the private banking space would be a prudent strategy? Are you also expanding into names like insurance and NBFCs? What would be the ideal portfolio allocation in these spaces?Honestly, first would be the PSU banks. My biggest weight is in the State Bank of India. It has very cheap valuations and a lot of catch-up to do vis-à-vis other banks and offers deep value. Secondly, a lot of large NBFCs are still underweight. For example, LIC Housing came out with quite strong numbers and the stock is available at less than one-time look forward. I think the stock has been rerated. So LIC Housing, M&M Finance can do better from the current levels as can the smaller banks like RBL or DCB. In all the financial spaces, we can go ahead from current levels.Where are you positioned in the entire divestment theme? Any specific companies that you are looking at?From the PSU basket, there are a lot of stocks like BPCL and also IOC and HPCL. There is deep value in all the three stocks. There is value in Engineers India in the construction space. Concor also offers deep value currently. So these four or five stocks look good from the current levels. Do you believe there is merit in playing the real estate space for the long haul? Where do your preferences lie?I have been underweight on the real estate stocks for quite some time but in the recent rally, one can make a basket of three or four stocks and typically positions in a particular region because that would play off better. For example, midsize plays like Prestige Estate, Sobha Developers and Oberoi Realty offer good value proposition from the current levels. These three stocks can be looked at from an investment perspective with a little longer timeframe. A lot of real estate stocks have moved up from their lows but still look good from the current level as well in the real estate space. Where would you stand on the two-wheeler space? How much of a game changer would a GST cut in two-wheelers be?This quarter’s results and the commentaries by the management of most of the auto players make it clear that their revival is coming from the rural areas and the rural India. The demand pick-up that we have seen in most of the auto names is from the rural areas. The two- wheeler space obviously saw a spectacular run-up in most of the stocks in August. I would still bet on stock like Hero and Eicher in the two-wheeler space. In the tractor space, M&M is our pick based on the revival of the rural economy. These three offer good value propositions from current levels. Would you be betting on the hospitality sector as a long term play?I think I would avoid it at this point. In the current situation, there are a lot of other options available. What is your stance on the pharma space which has shown quite a bit of promise of late?This rally began with the pharma stocks and we had a spectacular run up in the midcap space and obviously in the large caps. This rally might continue from here onwards. The focus might shift around the large players as midcaps have done quite well in the last two, three months. A few of them have been 4x from the lower levels. One should still participate in the pharma names with a mixed bag with large caps like Lupin and Sun Pharma and midcaps like Laurus to play along from current levels. Pharma looks promising from the current levels.