Why investors should bet on cyclical & not defensive stocks

Not everyone is gloomy about India’s prospects in 2012.

In an exclusive interview to CNBC TV-18, JP Morgan’s chief Asian and emerging equity strategist, Adrian Mowat, said that India actually has some pluses at the moment: equity valuations are looking good and inflation is expected to moderate. The Reserve Bank of India is also expected to ease monetary policy in response to the weak economic environment.

Mowat also said that in 2012, JP Morgan is turning bullish on emerging markets, after being bearish about them for most of 2011.

However, he was also concerned about the rupee and said that the big buy signal would come when there is more stability in the value of the currency.

When asked about his views on stocks/sectors, his recommendation was that investors should sell some of their defensive stocks (stocks that are relatively insulated from economy trends) and move into cyclical stocks (stocks whose performance is highly dependent on economic ups and downs). Why? Because cyclical stocks reported poor performances in 2011 and will be poised to benefit the most from policy changes that are expected to occur in 2012.

However, in the near term, Mowat expected Indian equity markets to continue underperforming until the rupee stemmed its slide against the greenback.

Watch the entire video below: