Vikas Khemani of Edelweiss Securities told CNBC-TV18 that he is optimistic on the market and expects it to remain buoyant for first quarter of 2013.
"In the first quarter, the market should be very buoyant because we are going to get into the Budget mode and there will be lots of expectations around the Budget," he said in an interview to CNBC-TV18.
Meanwhile, the fiscal cliff issue has been averted, but Khemani feels the sentiment in the market will more or less depend on the local market activity.
Below is an edited transcript of Vikas Khemani's interview on CNBC-TV18
Q: Do you think the markets now will see a big relief rally because the fiscal cliff has not happened and some kind of agreement has been reached?
A: This was one uncertainty which was there from international market perspective and market was slightly anxious about what will be the way going forward and to that extent it gets lifted. As far as the Indian markets are concerned, we have been seeing fairly easy liquidity flow from the international investors so far. With regards to Indian market, what happens locally at this point in time is lot more relevant than what happens in US and other markets. Definitely you would want an easy monetary policy or stable environment internationally, but local issues now are lot more prominent than others.
Q: Do you think the Foreign Institutional Investors (FIIs) inflows would continue as robustly in 2013 as we have seen in 2012? What would be the key triggers that you would be monitoring in 2013?
A: Last year was one of the best year in terms of FII inflows and very paradoxical because it was a year when huge amount of pessimism was there till we got the flows. Going forward, it will depend on how the macro environment improves. Our current account deficit is fairly ballooning at a rapid pace and that is one cause of worry. In fact it is imperative for us to get lot more FII flows and Foreign direct investment (FDI) flows to keep the rupee under check.
However for it to continue, investors would want to see whether interest cuts are happening or not, capital investment in the country is beginning or not, policy reforms are happening or not, as long as we are moving in the right direction we will see flows coming through. Lot of that has already been factored in, priced in.
If the Budget is more pro-growth friendly markets would like it and we might see more flows coming through. That would be one important factor. Second important factor, last year China was doing badly and hardly any flows went to China. China is beginning to look up, so you might see emerging market allocation which came in as a disproportionate share to India and might get allocated towards China on incremental basis and to that extent, India might be at a disadvantage if China starts doing well.
We must keep that point in mind to see whether FII flows in India will continue or not. We may not see the kind of magnitude which we received last year in the years going forward. It depends a lot on how things pan out. In the later part of this year we will also get into the election mode which will again create some uncertainty in the minds of the investors. So, whatever flows we have, will see in the early six to eight months time.
Q: What are you telling your positional trader clients at this juncture, are you expecting that maybe around Budget, before the market peaks off we are going to hit some 6100 or thereabouts? What is the advice to the traders and investors in terms of what they should buy?
A: The way we are approaching market at this point in time, first three to six months the market should be fairly buoyant. In first quarter market should be very buoyant because we are going to get into the Budget mode and there will be lots of expectations around the Budget. So there would be reasonably good amount of positive sentiment and interest rate cuts again we hope that happens in January. But we think that market will remain buoyant at least for the first quarter.
Also a lot depends on what things come out in the Budget, but at this point in time we are betting for interest rate cut, good Budget, corporate earnings to be stable and asset quality issues to remain under control because quarterly earnings of the banking sector next month would be very critical and we will have to wait and watch how that pans out. But currently, we are kind of optimist on the markets.
Q: There is a lot of optimism coming in with regards to metals as a pack and in terms of valuations at this point in time and they have been pretty much an underdog in 2012. Would that be something which you would possibly recommend to investors?
A: About three or four weeks ago, we had released a very aggressive bullish view on the metal segment and are positive on the metals as a segment. I think a) China as a country is picking up and there the Purchasing Managers Index (PMI) levels has been going up and that will drive the international commodity prices.
If you see the physical commodity inventory levels, they have been lower. So, we are quite positive both on the ferrous as well as non-ferrous metals. China’s recovery will drive the commodity prices higher and we have already seen, current prices are higher than in last three quarters both in case of steel as well as the copper and aluminum and that trend we see continuing at least for sometime.
Obviously a lot depends on China’s recovery and also from a valuation standpoint, most of the stocks are trading between three to five enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) which is a very reasonable valuation and if recovery happens you can make serious money from it.