Auto, banks, cement and capital goods to do well in 1-2 years: Sanjay Dongre, UTI Asset Co.

In a chat with ET Now, Sanjay Dongre, Fund Manager, UTI Asset Co., says other than the cyclicals, consumer discretionaries should also do well. Edited excerpts

ET Now: Let us talk a little about earnings then that is clearly top of mind. How would you really rate or judge the earnings season that we have seen so far?

Sanjay Dongre: I think so far the earnings season has been pretty good when you compare it with the quarterly results of last five-six quarters. I think the earnings which have been declared so far indicate that the earnings are actually bottoming out and going forward we should see some acceleration in the earnings and therefore most of the market people are expecting earnings growth of 13-15 per cent in FY17, which should be achievable given where we are basically.

ET Now: Let us focus on the media space, the reason being that it is a sector that has been doing fairly well. Today Zee Entertainment is expected to come out with its numbers. There's quite a bit of traction building up in the exhibition business as well. The ad revenue environment seems to have improved which could bode well for a lot of print as well as broadcast players. Is there any particular trend that you are observing here?

Sanjay Dongre: What we have been witnessing is that some of the DTH guys have been able to do pretty well compared to cable guys. When you look at the broadcasters also. If you look at the advertising revenue growth, it has been pretty decent and it has been in excess of 14-15 per cent and the reasons are pretty clear. For example, given the decline in the commodity prices, I think most of the FMCG players who are big spenders on TV, wanted to maintain their market shares and therefore we have seen increase in the promotional activity as also increase in the spend as far as the advertisement is concerned. Also going forward, we could see the second largest player in terms of capex in the telecom sector entering and launching their services. So we could see a good amount of advertising budget from those guys. So overall, I would expect the advertising revenues growth to be somewhere in the double digit and that should benefit the broadcasters. As far as the DTH guys are concerned, they have been able to take the increase in the prices, pack prices and therefore their ARPUs have been increasing while they have been able to lower the content cost and therefore that is resulting in the higher EBITDA margins for DTH guys and that is reflected again in the earnings and their performance in the marketplace.

ET Now: So what else is your sectoral shift right now? What do you like by way of sectoral allocation?

Sanjay Dongre: If you look at the last four-five years, quality has been the big performer in the marketplace but I think given that the interest rates are declining, inflation is settling at a lower level and therefore resulting in rising disposable income as far as the households are concerned. Also the RBI has now shifted its position on the liquidity from deficit to neutral. That should give rise to higher liquidity in the financial systems. So all these things should lead to a better performance in the cyclical sectors and therefore going forward, I think earnings growth is going to drive the performance of the stocks and sectors in the marketplace. If you look at the earnings growth, the cyclical sectors would show you the better earning traction compared to defensive sectors. And therefore, for example, if I were to choose some of the sectors which are likely to do well in the next 12-24 months it is going to be the cyclical sectors like auto, banks or cement or capital goods or I would say even on the consumer discretionary sector.