Can banking stocks generate high beta in the medium term?

Abhimanyu Sofat, VP-Research, IIFL, explains why he thinks it makes sense to increase allocation in private sector banks as well as SBI. He is also bullish on metal stocks for the next 3-4 months. Edited excerpts from an interview.

What would be the key highlights from some of the numbers and guidance that IT companies have reported so far this quarter?
One small cap company which has done pretty well is Cyient. The stock has not moved much over the last couple of quarters. It is clearly showing very steady numbers despite them not being in the same kind of service segment like others. They are on the aeronautical, auto and tourism related business which is why the stock has not reacted. This is one stock which looks interesting. I think Infosys numbers were also decent overall.

The rally that has happened in IT was quite sharp. I think most of these stocks will continue to sustain at these levels going forward.

What is your stand on the banking sector? While IT, pharma and speciality chemicals is the trio that you got to be invested in for the long haul, many believe that in the medium term you can bet on infrastructure, banks and domestic recovery stories to get a high beta.
If the Nifty rallies above 12,000, banking space will do well. Though some of the banks like HDFC and ICICI have done okayish, stocks like Kotak Mahindra Bank have not moved a lot. Those could be solid banks to look at going forward.

Most of the people are still not aware of the kind of numbers which are expected out of the moratorium. Considering the kind of capital raising done by them, a lot of the bigger banks are going to do pretty well. It makes sense to increase allocation to private sector banks as well as a SBI.

In infrastructure, one interesting stock could be Larsen & Toubro considering that it is available at a multiple of 10 times. Now the business has got more ROE because earlier there were a lot of fixed assets, but they have already sold some of their business to Schneider recently. I agree that over a medium term, you would need these stocks to provide the high beta.

Are metal stocks on your radar?
We are seeing recovery, especially in the Chinese market, and the prices of ferrous metals as well as aluminum are firming up. This sector is due for another up move over the next couple of quarters. So we are quite positive on stocks like Tata Steel. Even the smaller Tata Steel Long Products came out with a very good set of numbers recently. The metal pack is worth looking at over the next 3-4 months.