Mahesh Patil, Co-Chief Investment Officer of Aditya Birla Sun Life AMC believes that cyclicals are still not at peak valuations and will continue to outperform. He said that under-ownership of cyclicals will give these stocks further legs.

"If domestic recovery and the reflation that we have seen in global economy is indeed going to sustain at least for the next one year, then cyclicals would show slightly better growth rate. There is some amount of under-ownership which is there; some of the sectors are still at valuation levels which are not as high or are below the long term averages. So that is the sector which will continue to outperform in most part of this calendar year," he said in an interview to CNBC-TV18.

According to Patil, the PSU sector is playing catch-up post underperformance. He said that valuations and higher dividend yield makes PSUs attractive.

"PSUs have been a late entrant in the rally. We have seen some movement there in the last couple of months. I think now with the revival in the economy, the earnings outlook in quite a few PSUs is looking good. In terms of government trying to look at privitisation more rather than just a piecemeal divestment is good in terms of overall outlook for the PSU space. Most of the stocks are still at valuations which are still reasonable. Some of the companies are still giving out good dividend payouts. So, the sector still looks good in terms of margin of safety and absolute upside from these levels. These are not growth stocks and so they will not continue to grow at a pace which will be higher than the GDP except for a few companies, but at this point in time, there is still value in some of the PSUs. To that extent, somebody entering even at these levels should make decent returns from here on," he said.

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(Edited by : Priyanka Rathi)