Though the market has been continuously losing strength, some analysts feel that there is something more to cheer up investors. According to Gautam Shah of JM Financial the best of the bull market is still ahead of us. He feels that the downside of the market is about 100-200 points whereas the upside could be to the tune of 500-600 points atleast.
"From a medium-term angle, this market continues to be in a strong uptrend. We are firmly of the view that the best of the bull market is still ahead of us. So, somebody who has missed participating in the market in the last four-five months, I think around 5800, plus/minus 50 points is where the opportunity is to enter the market," he says in an interview to CNBC-TV18.
Shah firmly believes that the market is still on course to test its lifetime highs which should happen once this correction gets over by the middle of this year. Adding that the market is likely to see another 10-15%, he reiterates that the next leg of the move should see much better participation and momentum.
"Once the Nifty takes out 6100, it should be hitting 6350 and then substantially higher levels. So, over the medium-term, this market will give atleast 10-15 percent from current levels," he elaborates.
Below is the verbatim transcript of his comments.
Q: It has not been a great series for the market, particularly for the broader market. Do you see more pain ahead?
A: Earlier we spoke of a significant market top around 6100-6150 area and then we talked of a round of correction. This view has worked as per script so far, but the real challenge is right now because the sentiment is extremely weak. However, the charts are not indicating the same. What has really happened in the last two to two and a half weeks is a very normal routine correction after the big leg-up.
Infact, when the market was moving up in January, it did not really feel like a bull market. The momentum was missing, the participation was missing, the breadth was not there. It was just a handful of stocks that were taking the market higher. Once the Nifty got above 6100, it just got a little top heavy. So, what is happening right now is quite routine. While there are no immediate signs of bottoming, I do believe that there is scope for another 100 points on the downside. So, you could see the Nifty move into the 5750-5800 area where we see a lot of supports based on multiple technical studies. That’s the area wherein the risk reward will once again turn in favour of buyers.
From a medium-term angle, this market continues to be in a strong uptrend. We are firmly of the view that the best of the bull market is still ahead of us. So, somebody who has missed participating in the market in the last four-five months, I think around 5800, plus/minus 50 points is where the opportunity is to enter the market.
At those levels, the downside is about 100-200 points whereas the upside could be to the tune of 500-600 points atleast. So, we are firmly of the view that this market is still on course to test its lifetime highs which should happen once this correction gets over and the timeline we have for that is by the middle of this year.
Q: When you look at the medium term charts though, is this essentially still a trading market? Through the past couple of weeks the market has gone to the lower end of the range and gotten to 6100. The market made no attempt to get to that 6200-6250 level that you are alluding to in terms of a 500 point rally.
A: I don't think that the market has been moving in a range because if you look at the daily and the weekly charts, atleast for the last six months, the market has been making higher tops and higher bottoms. While it has been making higher tops, the conviction has been missing. Last year December, November and August- those were the periods wherein the market traded in a 200 point range.
Whenever the breakout from the range took place, it helped the market move up by 200 points quickly and then once again, the market got into a range. That is the reason that this is really not a textbook style uptrend. People in the market will say that they have really not been very happy and they have not really been able to participate with what has happened in the last four-five months.
However, one should not get too bogged down with levels. The level of 6100-6150 was the target based on a number of technical studies. What has really happened is quite normal. However, the next leg of the move should see much better participation and momentum. Once the Nifty takes out 6100, it should be hitting 6350 and then substantially higher levels. So, over the medium-term, this market will give atleast 10-15 percent from current levels. Any and every decline closer to 5800 is a good buying opportunity.
Q: What about the Bank Nifty? If your view is that the Nifty might drift down to 5750-5800, do you see more near term weakness for the Bank Nifty?
A: There could be some near-term weakness on the Bank Nifty simply because it is only in the last four-five trading sessions that some of the banking stocks have come off. I am referring to the way State Bank and ICICI Bank have behaved. The Bank Nifty almost tested that level of 13,000. It has not even seen a 25 percent retracement of the kind of rise that it has seen in the last four-five months. So yes, there is scope for another 200-300 points on the downside for the Bank Nifty wherein I think the PSU Banks will really contribute on the downside. However, our bigger picture view for the Bank Nifty remains positive. We have spoken about a target of 13,300. We are maintaining that and we feel that once this round of correction gets over and once the Bank Nifty loses about 200-300 points from here, one should see a 1000-1500 point recovery. While the Bank Nifty has corrected a little bit, there are pockets in this space that have still done well. HDFC Bank, Axis Bank, Kotak Bank, even YES Bank - these four banking stocks have been rock steady while the Nifty has lost about 200 points and the Bank Nifty has lost about 3-3.5 percent. So, there is nothing negative on the charts. If one has to play the India story, atleast based on the charts and if one is of the view that the Bank Nifty will be the first index to test lifetime highs, then one has to be into banking. This is a great opportunity from a risk-reward angle.
Q: What do you see on the global charts? So far, global markets have been rock steady, atleast the US has been. Do you see those gains extending? Something which maybe a supportive factor for us?
A: Not really. Firstly, the Indian market has really missed the bus because with what has happened in the global markets in the last one month, had the Indian market just moved along, one could be sitting at lifetime highs today. However, what has happened in the last three-four weeks is a bit surprising because on one hand the US markets are approaching lifetime highs. Some of the other Asian markets are doing well, Chinese markets are making a strong come back but the Indian market is losing about three-four percent in this environment. However, that’s a little bit of a worry because the US markets are now getting close to a point from where they could actually begin a correction.
Infact, we have been talking about a target of 14,200-14,300 for Dow Jones, 1550 on S&P 500 which were the highs that they tested in 2008. Once they achieve those levels, I think a large cycle will get completed. Infact, for the first time in the last one year, there is a scenario wherein the charts, the technical studies have actually stopped moving along with the price action which is an advanced indication that a period of correction is likely to set in.
So, I think another 2-2.5 percent upside is what we could expect in the US markets and thereafter, one could actually see a round of correction wherein, the US markets could lose as much as five-seven percent. However, the Asian market setup continues to be extremely positive. Markets like Hong Kong, China, Singapore continue to be positive in the medium-term. We are looking at an upside to the tune of 10-15 percent, sometime in 2013 itself. In that context, the Indian market should actually make a comeback and start to outperform once again. So, the global scene will not be too much of a worry going forward. However, I think the Indian markets will have to show signs of a recovery or stabilisation around 5800.
Q: The sector that has broken down and has significant representation on the index is capital goods. Technically, what do you see for some of those stocks?
A: Luckily, capital goods do not constitute the top five-six stocks on the index because it is quite interesting that in the last 2-2.5 weeks, while the Nifty has corrected about 200 points, the broader market has corrected significantly. The smallcap index has retraced 61 percent of its entire rise of the last four-five months. The midcap index has done about 50 percent. Capital goods has been one of the biggest underperformers and it is really disappointing because till the capital goods index does not show signs of strength, it does not make sense to buy these stocks just on face value.
When one talks about stocks like L&T, Siemens, BHEL – one feels that these stocks cannot go lower. However, they have been seriously underperforming. I would not look at them. But I think the top five-six constituents of the index, whether Sensex or the Nifty, they contribute about 30 percent of the market and are looking the steadiest at this point. Stocks like ITC, Reliance, ONGC, HDFC Bank and ICICI Bank, these five-six popular stocks, unless they correct significantly, the index is unlikely to go down too much.
This is an important takeaway. It is very important that one is invested in these five-six stocks atleast from a portfolio perspective because then one is moving along with the market and one would not suffer the kind of damage that we have seen in the midcaps recently. So, one has to be choosy. However, at the same time our favourites right now would be banking, technology to a certain extent and autos.
Q: What are your targets on the dollar-rupee and crude?
A: Crude remains in a bull market. We have said this many times in the past and we see the NYMEX crude moving back into the USD 105-110 per barrel zone level. On the downside, USD 85-90 has acted as a strong base many times in the last one year. So, we continue to have a very positive stance there. But what has happened to the dollar-rupee equation is quite interesting because as the markets have corrected, the rupee witnessed a breakout and then the rupee appreciated down to levels of 53-53.50/USD. The rupee is actually very critically placed at this point.
The entire volatility of the last one year in the rupee can be captured by way of a very significant pattern that has come up on the charts. Once the rupee were to breakout above 53/USD, one could see it appreciate towards level of 51.50/USD and eventually, at some point of time this year, maybe the last quarter of this calendar year, one could even see the rupee test the level of Rs 50/USD. So, that’s an important takeaway at this point of time. I would just wait for the rupee to confirm the price action which is on a breakout above 53/USD.
A: It is difficult for me to give a stock specific call because we track sectors. FMCG as a space has seen its best. Infact, in FMCG and healthcare - the two perceived defensives, we are seeing major signs of topping out in both of these sectors and for the rest of this year, these are the two spaces that will underperform.
They might not fall too much but because our view on the Nifty is quite bullish, these sectors might get into a range and then gradually move lower. The consumer durables index still has a very positive setup and over the medium term, one could see the index appreciate as much as 10-12 percent. So, just like banking, we have a very similar view that one should be buying this decline because the top five stocks in the consumer durables index have a positive setup and should be doing well.