See mkt rally 5-10% in run-up to polls; buy L&T: Edelweiss

Vikas Khemani, Edelweiss Capital expects foreign flows to continue to find its way to the Indian shores. He says the market can rally around 5-10 percent further in the run-up to the general elections next year.

Speaking to CNBC-TV18 on specific sectors and stocks, he says IT and export-driven companies will continue to outperform given the depreciation in rupee. He also sees huge amount of capex coming into the manufacturing export space.
Khemani is bullish on L&T and expects it to become a multi-bagger in next 1-2 years. Also, after Iran's nuclear deal with the six global powers including US, market is expecting the crude price to fall substantially and therefore, he believes it’s a good time to invest in oil marketing stocks at the current levels.
 
Among large cap private banks, ICICI Bank remains Khemani’s top pick.
 
Below is the verbatim transcript of Vikas Khemani’s interview on CNBC-TV18 Q: Do you think market will hold on to 6,100-6,200 range up until expiry, what happens thereafter, can we see some major sell-offs or is foreign money preventing any sell-off?
A: Currently, markets are moving based on the liquidity and one day you have liquidity and markets goes up without much of volume and for some stance even if the markets are close and you don’t have liquidity, market consolidates.
The markets right now are characterised by the liquidity, so one has to see whether liquidity will sustain or not. It looks like liquidity is likely to sustain because even in the developed market, even though the growth is coming back, developed markets are appearing to be very expensive. Hence, global investors would always have some amount of money being allocated to the emerging economy moving forward basis.
So, one has to take a call on liquidity. Currently, even if we have a quantitative easing (QE) taper kind of a situation with a minor setback based on the news, in medium-term liquidity is likely to continue especially towards India and China.
As far as fundamentals are concerned, if you see macro basis, we have had a situation where inflation seems to be closer to the P/E and growth is also more or less bottomed out and capex cycle has bottomed out. Most of the foreign investors are taking a call that investing in this set up right now for medium-term to long-term basis makes a lot of sense.
A combination of these two factors will keep on driving the liquidity in the Indian markets. It is unfortunate that domestic money is not coming into the market, retail participation is not there even if we are very close to all time high. At this point in time, you can find a lot of value in the midcaps, lot of value in some of the stocks and sectors even if the markets are close to high. Markets right now seem to be in a consolidation zone after having rallied sharply.