There is a lot of conviction in the market of a strong government coming in place in the forthcoming elections, believes Vikas Khemani, CEO - Wholesale Capital Markets, Edelweiss Financial Services. Unless some negative news flow comes on this front, this rally is likely to continue, he adds.
He feels if a strong government comes in, this rally will get over extended in the shorter term. The level would be closer to 6800-7000, but it is more dependent on what kind of flows will come in, he adds.
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Below is the verbatim transcript of Vikas Khemani's interview with Shereen Bhan on CNBC-TV18
Shereen: We have seen a good breakout for the Nifty over the last few days with a very strong buying coming in by the FIIs. Do you believe the current momentum can continue?
A: The current momentum has built based on expectation of strong government coming in place in the forthcoming elections. A lot will depend on what kind of news flows we get on that front. Currently it looks like there is lot more conviction coming around that fact and very small amount of money we have got so far. So, it has gone up on lighter volumes and driven by small amount of money. I think it is a very important event. Unless some negative news flow comes on this front I think it is likely to continue. The extent and the pace will clearly depend on what kind of flows come in. I do think it is probably post election rally getting preponed based on the conviction getting built around the outcome of elections. That is what I would read into the current rally.
Shereen: Has a Modi victory perhaps already been priced in or even if it is not a Modi victory but a strong government possibility being priced in by the markets already at these levels?
A: It is too early to say. I don't think if you were to assume that there is a strong government in place at the Centre I would say that it is definitely not factored in, there is lot more room to grow. Markets tend to overreact in the short term always and still there would be some room to grow. Without this election also right now equity looks fairly placed favourably in terms of risk and reward. I think if a strong government comes in place it will get over extended in the shorter term. So, that level could be anything. In my opinion that level would be closer to 6800-7000 but it is more dependant on what kind of flows will come in. Right now we are very low on the float. It depends on what kind of time we take, what kind of flows come in but I would tend to think that still it has lot more legs to go from here if the outcome is favourable.
Shereen: Can we say that the base for the Nifty has moved upwards? Would you say the new band of 6400-6800 is the new range that we are actually looking at?
A: Unless there is some negative news flow markets are going to be on a strong trajectory. You will see always first the interest rate sensitive or high beta stocks doing well in the large cap space then followed by midcap rally and broad based rally. If the outcome comes favourable that trend will continue and I think probably it will make a new range as and when we get closer to election and get more favourable outcome. Also we have started seeing some more improvement of the data - auto numbers have been improving. There are lot of other expectations also building. In short term I continue to believe that market will get over extended based on expectations but that level is only going to be determined as and when we get there.
Shereen: What are the key risks that you envisage for Indian equities in the short term?
A: Short term is definitely event driven, news flow driven. Interest rates have not started coming down, interest rates still hold fairly high and risk in the Indian banking asset side is still fairly high. I think that will take some time to pan out. So, it might happen that in expectation markets might run up ahead of the fundamentals and that might create some short term correction, short term downfalls. Also any disruption or any bad news around the ongoing election could also create somewhat negative sentiment and this rally could again correct in shorter term but they are all short term sort of measures. I continue to believe that Indian equities hold a lot of promise from a medium to long term perspective.
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