Buy rate-sensitive stocks only on correction By JYOTIVARDHAN JAIPURIA, DSP MERRILL LYNCH (INDIA) We marketed in the US over the past 10 days, a very interesting period with the QE3 and the reform thrust by the Indian government. There was a sea change in interest among US investors on India post QE3 and the FDI reforms announced in India. Clients sensed a change in the political environment in India and some investors who earlier were staying away from India are now keen to meet and understand the shape of things to come. However, US investors were relatively more muted in buying the market relative to Asian investors. Firstly, they thought the markets had run up too fast and preferred to wait for a correction. Secondly, while everyone appreciated the reforms were a big step, the general feeling was that much more would need to be done before we could see the economy reviving. On the back of the reforms announcement and QE3, high beta rate-sensitive stocks have rallied a lot. We would now recommend buying rate sensitives only on correction. Irrespective of whether their view on India was bullish or not, they preferred to wait for a pull-back in the market, and most investors agreed that the domestic rate-sensitive and beta plays were where they would focus on. The more nimble investors were focused on our beta screen. The longer term investors preferred some of the more quality names: we would highlight ICICI, Maruti and Jaiprakash Associates. There was lot of interest in our chart on valuation premium of defensives vs rate sensitives being the highest in past 10 years. Inflation was a focus for investors, especially with QE3 raising concerns of a possible spike in crude prices. There was lot of interest in our inflations vs CRB index chart. Towards the end of our trip, investors were breathing a little easy given that crude had come off.