``Both Telco as well as Ashok Leyland have shown tremendous improvement in cost control and utilisation of cash. Both have undergone business process re-engineering (BPR) over the last few years and have evolved better. Now, they are ready to make use of better demand conditions. Till today they were concentrating on the internal efficiencies of the company. From now on they will benefit from increased demand for their products'', said Madgavkar. He said that in Telco's case there has also been a tremendous response to the car [Indica] in which Telco does not have demand constraints but supply constraints. So this makes Telco a good bet. Same is the case for Ashok Leyland.

In the cement sector there has been a much better pick up in demand. ``And over the next one year the demand supply gap over the whole country will probably vanish. So, we are bullish on cement,'' said Madgavkar.

There is increased demand from infrastructure and housing sector. ``There will be blips in monsoons but the monsoons should not be taken as the indicative of the rest of the year. The overall increased demand will lead to better price realisations and we see many of the large players, doing much better. There will also be increased consolidation in the cement industry with consolidation of the fragmented capacities,'' emphasised Madgavkar.

Auto ancillaries are going to benefit from two factors: one, is the domestic demand and second is the export market. In the domestic market if you are seeing improved offtake in auto then there will be improved offtake of auto ancillaries as well. The sector will also benefit from increased exports, which is already being witnessed.

The software sector is witnessing good growth rates which are likely to continue between 40 per cent and 70 per cent rates of growth. ``As we go forward one has to be very careful in picking software companies. Investors have to be very careful about the number of IPOs that are coming out in software. There may be a number of good companies that hit the market but sheer competition will drive them out of the market, though they may not have a fraudulent intent.''

Speaking on the revival of the commodity sector he said:``Prices for the metals have rebounded in the world markets but today we are more and more exposed to global prices and so we are exposed to the volatility of the prices of these commodities at the global level. In this scenario, given the fact that the prices are on an uptrend we have to see the sustainability of the prices in a global scenario. We think that the worst is behind us for the commodity sector and there is a good upside from here and so we are bullish on this sector as well''.

On the interest rate scenario Madgavkar said: ``I do not see any upward movement in interest rates because of the following reasons: Despite there is likely to be more than budgeted estimated in government borrowings, there is tremendous liquidity in the system due to a high rate of growth in demand and time liabilities of the banking system and a not so powerful or high rate of growth in credit offtake. Therefore we see a lot of liquidity in the banking system in the next few months''

This will keep the interest rates in check. ``Even if there is increased demand from the commercial sector and therefore further demand and a higher rate of growth in credit offtake we still do not see an upward movement because the RBI can always cut CRR as and when they think prudent.''However, he does not see the spread between AAA bonds and gilts reducing from the current level. ``We could see a situation where gilts and AAA will trade within a narrow interest rate band. Going forward what could happen is that there will be a reduction in interest in the yield curve for companies with a lower than AAA rating. Accompanied with the economic recovery and better cash flows these companies who are below AAA will get better borrowing avenues. The gap between the less than AAA companies and AAA companies is likely to reduce'', said Madgavkar.