Expect to see improvement in underperforming cyclical: Rajesh Cheruvu

Q&A with Rajesh Cheruvu - Chief Investment Officer, RBS Private Banking (India), on interim budget

While in a conversation with Puneet Wadhwa, Cheruvu says he hopes to see improvement in utilities, capital goods, metals and materials with the signs of growth bottoming and expectations of fiscal policy improvement post elections. Following is the complete transcript: 
 
What's your reaction to the Interim Budget statements? What are your key takeaways?
Fiscal deficit for FY 14 is a surprise and intent for FY15 is also positive. Cut in excise duties for 3 months, could have limited impact on Capital goods while auto sector could see some demand recovery

How are you viewing the statements pertaining to the fuel subsidy?

Given the limited mandate, it is not populist or expansive and an exercise to put house in and sincere efforts to avert rating downgrade. Overall subsidy bill including fuel is in line with that intent with a marginal uptick. See this as a positive approach despite electoral compulsions. I mean keep the house in order in terms of fisc.

The interim budget also proposed Rs 11,200 crore capital infusion in PSU banks. Does it change your investment strategy as regards this space? Is the worst over for the banking sector given the road ahead for the economy?
Of course not, given the sustained rise in credit costs and restructured debt could keep the credit quality and earnings growth concerns continuing in the medium term. Continue to prefer Private Banks over PSU banks. With the expected recovery in economic activity banking sector could also benefit in expansion of their balance sheets, while profitability and asset quality concerns could restrict their valuations in the medium term.

So given all this, what should be a good portfolio strategy for the next 3- 4 months, or till the time we get a full-fledged budget later this year? Which sectors / stocks would you advocate?
We expect to see improved momentum in underperforming cyclical sectors like Utilities, Capital goods, Metals and Materials with the signs of growth bottoming and expectations of fiscal policy improvement post elections.