Lalit Nambiar, Senior Vice-President and Head Research, UTI AMC spoke to Puneet Wadhwa on the stock markets

The markets have begun 2012 on a positive note on the back of strong FII inflows. Is the enthusiasm regarding the improvement in macro-economic situation is a little premature and overdone?

It is still early days to talk about enthusiasm. We think that the recent rally in the first fortnight of the year was partly driven by short covering in equities by foreign investors on the rupee recovery and some routine start of the year allocations in a market which set a low base in CY11.

How have you churned your portfolio in the past three months? Are you fully invested at current levels? Do you see any stocks / sectors worthy of investment in the current market scenario?

We are traditionally low churners as a fundhouse. I am holding about 7 – 8% cash on an average in the schemes that I handle.

Do you plan to hike exposure to rate sensitive stocks going ahead?

I feel that the Reserve Bank of India (RBI) will hopefully start lowering rates by early March. While rates cuts look inevitable now, some of this expectation may already be priced into the market.  Inflation may well rear its head again in the middle of the year as right now it seems to have moderated more because of a base effect.

Global liquidity, elements of government subsidy which may wear off and import of inflation will also have to be closely monitored. So both the extent and the pace of the cuts will have to be sensitive to the possibility of inflation rearing up.

I have reasonable exposure already to rate-sensitives, so now it would more be a question of keeping what could be longer term winners and booking profits in the rest.

Would you recommend investing in debt at the current juncture or is it the right time to start investing in equity funds?

It is always advisable to avoid timing the markets, unless you are a trader. The mix between debt, equity and other asset classes should be based on investment goals in terms of long-term capital gains versus current income, while keeping in mind, risk appetite.

Valuations indicate equity is closer to the lower end of its historical range and hence an attractive long term bet. Equity investment will be the only way most non-entrepreneurs can create long lasting wealth.

How has the results season panned out thus far? What are the key takeaways according to you?

No major surprises yet, but one would have to be adventurous to extrapolate it to the rest of the results as these are volatile times. It has been inconclusive on growth and margin trend and we suspect it may yet have a sting in its tail.

Stock picking may matter more than sector allocation in CY12 as the market, while seeing sharp swings, may well end sideways or only slightly up for this period.

How do you see the commodity space panning out given the slowdown in China and the problems across the euro zone and the US?

Commodity prices have traditionally been a function of global economic growth expectations. But the recent spate of crises in various developed markets has meant that we are looking at waves of liquidity interspersed with weak growth data.

This sort of wiggle in sentiment can keep commodities in a high volatility zone across the globe in the short term. So commodities will likely be volatile, risky and may see India importing inflation.