Expect banking, midcap IT & cement names to do well: Vikas Khemani, Edelweiss

In a chat with ET Now, Vikas Khemani of Edelweiss Financials shares his outlook for the market and some sectors. Excerpts:

ET Now: Nifty has now breached 8,600 levels. What are you advising to your clients?

Vikas Khemani: This is a structural bull run. Obviously, our advice has been to continue remain invested into equities, keep allocating more money in a structural way. These kind of movements will happen once a rate cuts happen. We have seen good amount of flows coming from foreign investors. The more reaffirmation of such events you will see, the more India will attract money. So, when you are in such a structural bull run, you do not worry about small hiccups. We are fairly positive on the market.

ET Now: The profile of the stocks which has helped the market make bounce back includes cement names. This is a pocket that you are also aggressively pushing investors to buy. Can you tell us the rationale behind?

Vikas Khemani: The rate-sensitives are what we are mostly positive on. We think that being large caps and being leverage to both growth and interest rate cycle is what will make them do very well. So, for this year’s perspective, we are definitely positive on the banking space.

Answering to your specific query on the cement sector, structurally if the infrastructure investment has to get created, cement sector has to do well. The capacity comes in step function. The moment the demand picks up, you will start seeing somewhat narrowing down mismatch between demand and supply. You will see expansion of the Ebitda margins. Note that the large cap stocks are very expensive in the cement sector. Therefore, one has to really be specific in terms of stock picking, but I do feel that cement as a sector will do very well over next three-four years.

ET Now: What is your view on IT sector? Even as that managements had given out a cautious outlook, the earnings numbers have been surprised the market?

Vikas Khemani: We are neutral on the IT space. We will see 14-15 per cent annualise growth, which given the kind of valuation they trade at, you might see similar kind of returns getting delivered by the companies.

We are more bullish on the midcap IT companies where probably the growth can surprise on the upside. You might see better returns, but over the next couple of years, a lot more opportunities would be there. I assume investors would realign and invest more. So, we are more focused on the India-focused sectors and India-focused demand-driven sectors.


ET Now: We have already seen Hindustan Unilever (HUL) running ahead of fundamentals. There is a bit of extended rally, but apart from that given your focus on demand-driven sectors, what is it that you would bank upon?

Vikas Khemani: Wherever we see 18-20 per cent earnings growth visibility, we bet on those sectors. We think banking and financial services sectors would be one of them which can deliver the kind of growth over next three-four years.

Again there is a lot more money to be made over next three-four years in the banking sector. Another sector we are bullish on, based on the investment cycle, is capital goods and engineering, procurement and construction (EPC)-related companies and sectors where you will see order book getting created, followed by earning cycle. These two segments according to us will do very well. Apart from that, there are other sectors such as consumer discretionary which are focused on urban consumption. Therefore, within consumption, we are bullish on that space particularly.