Mkt to correct in medium-term; bullish on banks: Edelweiss

Equity benchmarks drifted lower for the fourth consecutive session on Friday, as weak global cues deterred fresh buying. The Sensex has now shed nearly 655 points from its peak seen Muhurat trading day. According to experts, investors appeared to be worried about the impending reduction in bond purchases by the US Federal Reserve. Vikas Khemani of Edelweiss Securities believes market will consolidate and correct in the medium-term due as there are no positive triggers for an upmove from these levels.

Speaking to CNBC-TV18 , Khemani sees the market entering a corrective phase, and remains positive on banking and financial services, manufacturing and export-oriented companies. He also sees opportunities in  midcap IT sector because of the likely upturn in the US market. Below is the verbatim transcript of Vikas Khemani’s interview on CNBC-TV18 Q: You talk to a lot of institutional clients. What is the sense right now on India? This week we have seen a bit of profit booking. We have seen banks underperform. We have seen some money go back to IT and pharma. Is a bit of risk-off coming back to the market? How would you be positioned on the market after the run that we have had so far?
A: There was a very sharp rally post Reserve Bank of India (RBI) governor came in and it got coincided with quantitative easing (QE) tapering getting postponed. To that extent, we have seen a good rally coming and after such a sharp rally without being backed by a significant on the ground change in the economy some amount of consolidation, some amount of correction is bound. I think that is what we are seeing and I feel that market will consolidate and correct in the medium-term, because there is no major trigger left at this point in time.
Next major trigger is only the state election results and that would be in the first or second week of December. Until then, market would be lacking any major triggers. So you would see somewhat sideways or corrective market sentiment. Liquidity is definitely slowing down post US data showing some amount of strength and also fear of QE taper coming back or some amount of risk-off sentiment coming back on table.
We have seen exchange traded funds (ETFs) seeing some amount of outflows in the last three-four days. So, that is getting reflected in terms of the market movements as well. You might see those sentiments coming back, but will you see a major reversal of the current ongoing theme, I do not believe that unless we see some major global development, which I am not aware at this point in time. But market would definitely correct and consolidate in a narrow range in next couple of weeks. Q: Until this market finds the next direction for itself a lot of people are recommending a stock specific approach, because even with the headline index at close to a record high midcaps are still 30 percent off from their record highs. If you had to recommend three or four stocks either from the front-liners or from the midcaps what would your top picks be now?
A: I will stay away from recommending any specific stocks, but midcaps at this point in time are offering tremendous value. There are lots of high quality midcaps. If you take out consumer and pharmaceutical space which is slightly overrated in all spaces there are good high quality midcap stocks that you could look at trading at 1 time book, 5-6 percent dividend yield and especially in the manufacturing led sectors whether it is auto component or textiles or export oriented sectors, in these sectors there are very high quality stocks available.
In the recent past as the risk appetite was coming back, you saw midcap rally happening and still there is lot of hunting happening on those stocks and investors are looking for those names. So, in each of these segments you will see a lot of valuation buying opportunities. One can align those stocks and portfolios depending on what is the risk appetite of individual investors, but going forward as we are into corrective phase, banking and financial services sector would again have lot of opportunities to be shopped around.
Manufacturing and exports would have lot of opportunities to be shopped around. Midcap IT is again a sector where you can find many good quality companies which will grow 15-20 percent in next couple of years as the US market growth is very promising and you could look at many ideas there. In these three-four broad range of sectors you can find many ideas.