Sandeep Shenoy, Head-Equities, PINC Research, advises investors to buy most heavyweights at this current juncture. "I think one should look at those companies that have adequate balance sheet strength, whose debt draw ability is good, will be able to implement their capex without much problem, and whose return on capital employed are still better than the cost of debt because you cannot draw debt at 13.5-14% now."

Among heavyweights, Shenoy recommends a buy on Tata Steel, Reliance, and Sterlite among others.

Here is a verbatim transcript of the exclusive interview with Sandeep Shenoy on CNBC-TV18. Also watch the accompanying video.

Q: What's your sense right now – in the near term by the end of this calendar year where would we be?

A: It is tough a question to answer but I don’t think we are going to have too much of a chance to rejoice because the shorter-term pressures may have got elevated from the markets under current juncture but they are still going to be there for quite some time to come. So until the December quarter numbers are out, I don’t think we are going to have some kind of sanity coming to the market. We are going to be under pressure till that time minimum.

Q: Results of the December quarter also would mean a wait of only three-months but do you see any chance to rejoice even then, going by the kind of incremental macroeconomic data and whatever you may be processing even in terms of investment banking activity and capex plans?

A: Capex plan is more or less in-line. I don’t think the big daddies of the industry could be a couple of billion dollars here and there but I don’t think the capex plans have got derailed to a large extent except those kite flying capex structures where people had announced Rs 50,000 crore or Rs 100,000 crore capex in West Bengal and Orissa. But by and large most of the capex plans are not derailed to large extent. The point to be noted here is that most of the Indian industry by last estimate may have been sitting on somewhere close to around Rs 150,000 crore worth of inventory – both on the input and on the output side and the sharp collapse in prices of commodities may have resulted in substantial erosion of those inventory both on costing as well as on realisation front.

The impact of that on balance sheet as well as P&L is yet to be discerned. So that is going to be a key point. It’s not whether your margins are going to be safe or your capex is going to be derailed. That’s beyond it right now.

Q: What is the in-house view at PINC? What kind of EPS growth are you factoring-in for FY09, and more importantly for FY10? How will you process that information for an investor? Would you be a buyer?

A: I think we would be buyers in most of the heavyweights companies at this current juncture because I think those companies that have adequate balance sheet strength and whose debt draw ability is good and those that will be able to implement their capex without much problem, and whose return on capital employed are still better than the cost of debt because you cannot draw debt at 13.5-14% now even if you are the bluest of the blue-chip companies. So, if your RoC is above that then you are going to be on a safe zone.

So, you could have an EPS growth of around 12-12.5% this year and maybe slightly better than that next year because the pressures on the EPS front could be easing next year. But till that time you are going to have some kind of pressure on the valuation front.

So, some of the heavyweights could be available at seemingly low valuations now. They may not give you good returns in a couple of quarters, but on a longer-term basis they could give you remarkable market outperforming returns. That is where we are telling people to invest in.

Q: Could you name these stocks?

A: Among the heavyweights you could start off with Reliance. There could be some inventory problems there but I think the company has the balance sheet size and scalability to tide over it.

One could also look at Tata Steel, or Sterlite or even the battered down auto stocks. To a large extent they are discounting an extremely pessimistic scenario on both the operational side i.e. the input margin side as well as on the offtake side. I think these are the kinds of heavyweights that we feel could be in for a good rerating in days to come.

But the point is, stick to the largecaps only, and don’t try to move beyond the largecaps at least for a couple of quarters from hereon.

Q: One quick word on the telecom space. We have seen Unitech deal and now TTSL – what's the call really on that sector?

A: As a country we should be happy because we are drawing multibillion dollar investment but these businesses are going to have a huge gestation period and the experience of Bharti and others – they took around five-seven years to breakeven – the earlier set of players. These kinds of players who are stepping in right now and pumping in money could be taking even longer time because they are starting on a fag end of the curve which is slackening. So for a country its good, but I don’t think for an investor who is moving into this kind of a company at this juncture – it is going to be anything worthwhile. So best is to stick to the size and stick to the large established players at the current levels. They would be having all the advantages and they may give you market out performing returns.