See support at 6000, next trigger elections: Edelweiss

He prefers the two-wheeler space over the four-wheeler companies like Bajaj Auto. He is bullish on Tata Motors on the back of JLR's strong performance. He advises investors to buy PSU banks if they fall further this month.

Below is the verbatim transcript of Vikas Khemani's interview on CNBC-TV18

Q: We are getting negative cues from the global markets. Do you think after yesterday’s deep cut, today could be a bigger cut for Indian markets?

A: What we saw yesterday would have surprised most of the market participants because the consensus was building or was there that the market would hold on and the sharp fall in the last half an hour changed the mood. However, market was looking heavy around 6,300 and the absence of major triggers and somewhat selling which came, led the market fall yesterday and also today most of the international markets are in a weaker territory so you would see that also getting carried out today in the Indian markets.

This correction was due because ground level improvement on the economic data front is happening but it will take time to improve in a meaningful manner and there are worries about fiscal deficit not getting met and possible spending cuts leading to some more worries about how the growth can deteriorate further in the next one-two quarters. So, those worries have come back and the next big trigger is in the form of election. So, from here to election, market will trade in a narrow range and maybe towards the closer end of election, how the political scenario builds up, you might see a pre election rally kind of scenario building up.

Some time ago there was consensus that Bharatiya Janata Party (BJP) is gaining ground and post the Aam Aadmi Party (AAP) development, there are murmurs on how the session will pan out in the central election and that is holding the key and that is also introducing worry in the minds of foreign investors that how now the situation will come about.

These kinds of things will keep the market edgy and will have to see how the quarterly earnings come out in this month and that could set the mood in somewhat positive way, but we will have to look for trigger. I do not think in the absence of any strong direction about political movement, market would find big trend.

Q: How much this bull market correction, if it is could extend to, so what could the quantum of correction be on the downside and if it plays out, what would be the stocks to buy?

A: There are certain negatives, but at the same time in terms of positives, you have inflation data settling down. We are finally seeing concrete action coming out from the government side, while there are worries which are capping the upside but these kind of action would provide the bottom or protection on the downside and I do feel around 6,000 level market would find some interest, some support because worse seems to be behind, things can start looking up from here on the macroeconomic factors and except for the political event which is a big event, things look to be falling in place. So, that would provide downside protection so in a range of 6,000 in and around of Nifty, there would be some support or interest coming back from the investors.

In terms of what to look for, I do feel that sectors that are linked to economic growth or recovery of the economy such as banking and financial sector or capital goods sector where the operating leverages are very high. I think those kind of sectors will provide better risk reward from a medium-term to long-term perspective. Having said that these sectors also offer good volatility given the not so clear macro environment but at the same time it is about risk and reward. So, we do feel that superior risk reward would be generated by sectors linked to the economy, high beta sectors linked to the capex cycle of the economy, linked to the interest rate cycle of the economy and also in the midcap space.

Q: In that list was Punjab National Bank (PNB) and UCO Bank, both of them had a stellar December and yesterday they fell like a rock. How would you approach these two stocks?

A: We saw somewhat interest building in most public sector undertaking (PSU) banks and stocks which were kind of beaten down earlier very sharply also recovered in this rally and that typically happens when the stock gets hammered and the mood changes when investors were looking to build some beta in the portfolio and realigning the portfolio, these stocks did very well and after such a stellar performance in a month especially without seeing any significant impact or a change at the ground level in terms of whether it is asset quality or interest rate cycle, there is expectation but actually it will take some time to take place.

However, after such rallies, such kind of correction, profit booking is bound to happen especially when the overall market was looking heavy. Stocks which went up also would take slightly bigger knock than overall market and I would say these stocks would fall into that category, but in PSU banks if sharp fall comes in this month for whatever reasons, you could look from a long-term perspective, good risk reward rates and if PNB or UCO Bank corrects another 10-15 percent from here then they would be buying opportunities.