Gautam Shah, chartered market technician and vice president (financial services) at JM Financial says the Nifty might move toward 6100-6150 in the near-term, but adds there are no signs of topping out on the charts. He expects market to test all-time highs in 2013, led by the Bank Nifty. He also expects real estate and infrastructure stocks to continue with their outperformance going forward.
"We expect the broader market to outperform," he told CNBC-TV18 in an interview. On the flip side, he advises booking profits on FMCG and consumer plays. He also sees lack of conviction in oil and gas space. He says the sector needs to outperform for the market to meaningfully move higher.
Traders will watch the domestic sharemarket moves for direction during the day. The NSE benchmark Nifty rose above 5,900 points in pre-open trade, on Wenesday, for the first time since April 25, 2011. Traders expect 54.25 levels to be tested during the day with the pair likely to break below 54 if FDI in retail gets parliament nod.
Commenting on the rupee, Shah says, the currency is likely to move towards 51 to a dollar after consolidation at recent lows. "The rupee weakness has been surprising given the equity market performance," he says.
Below is an edited transcript of the interview
Q: Where will the Nifty take us in the next few weeks?
A: I am not very sure because every time you put a target, the market reaches that level so fast that you are forced to work with much deeper targets. This is a time when you should not get too bog down with Nifty levels because the story is elsewhere, the story is in the midcaps and smallcaps.
For a lot of people, reading this bull market the only reference point is what happened in 2003-2007 and for people like us who did not see the early 90s, it could be a bit misleading. This is because no two rallies are similar and therefore for now, in the extreme short-term you would see the Nifty move towards the level of 6,100 to 6,150, something we have been maintaining for a very long time. Around those levels you may see another round of consolidation, but right now there are no signs of topping out.
This market is going to see much higher levels going forward but one should be little savvy and should use small declines because of global and local news flow volatility as an opportunity to go long.
Q: Are we technically on track to take out the previous high?
A: A lot of people are obsessed with 6,350 that we saw five years back. But for us 6,100 to 6,150 is the first stop because the market has been rallying hard for the last few weeks, so at that level one should see the next round of consolidation or a correction. Eventually, the market will take out 6,350 sometime next year and once that happens the momentum will only increase because of further participation, better momentum.
Next year you may see the Nifty move into 6,500 to 6,700 zone, that remains a call for long-term investors. We are looking at 6,150 for traders right now.
Q: What would trade right now? Would you trade the Bank Nifty, the Nifty or would you just focus on a couple of individual midcap names to generate best trading returns?
A: It has to be banking. The Bank Nifty is single handedly taking the Nifty higher and the way some of these banking stocks are moving, a lot of private banks are trading at lifetime highs, like Yes Bank, HDFC Bank. They have been overbought for a long time, but a lot of people and particularly traders need to keep in mind that in bull market, in strong uptrend markets, stocks can remain overbought for lone period of time.
Even for last few days you had the Bank Nifty and the Nifty a little overbought but that doesn’t mean that you exit your positions or you do not go long because even at current levels the momentum is very much there. The banking index is one of the best looking charts at this point of time and will be the first popular index to go on to make a lifetime high which is above levels of 13,300. There are another 1,000 points to play for the Bank Nifty. So far we have been very bullish on the private banking stocks and maintain that view, but now some smaller PSU banking stocks need to make a comeback.
I am not talking about State Bank of India because I still do not like the setup. The stock is still in Rs 200 range but some of the smaller PSU banking stocks have build an excellent base for the last two-two and a half week and could now be setting out for a bit rally that could lead to returns as much as 25-30 percent over the next few months. So banking is our favourite and have been aggressively recommending it to our clients.
Q: These sectors usually see the most exceptional returns come from the high beta space. Would you trade anything from real estate, infrastructure?
A: Totally. A portion of your portfolio has to be in high beta and it’s interesting because the move in real estate and infrastructure that your see right now, the foundation was laid in January-February this year because the real estate stocks saw a phenomenal move. Then for almost six months it got into a range, a lot of stocks retraced back to their December lows. Some of these stocks have seen a comeback in the last one-one-and-a-half months. This is just the beginning of a big bull market in real estate and infrastructure.
One should not get too bogged on with the Nifty levels because while the Nifty could give 10 percent, outer limit 15 percent over the next six months. Some of these real estate stocks can give you 30-50 percent, maybe even 100 percent over the next six-eight months. So yes, the charts indicate that you will continue to get positive news flow in this space going forward. So, a certain portion of your portfolio has to be in some of these high beta names.
Q: What about the consumers; would you take profits here or do you see more upside from hereon on some of these big names?
A: I would take profits, in the market setup right now; you have leadership coming in from banking, capital goods and to a certain extent IT. Therefore, we do not like FMCG, even the consumer durables BSE index is looking quite overbought on the charts and we are at the fag end of a major rally in some of the sectors which have already seen a phenomenal move in the last one-one-and-a-half year. So, the leadership in this market has already changed and while you may get some more upside in these two sectors, it makes sense to stay with the ones, I mentioned earlier.
A: It is difficult to understand this space because the moves have been start-stop kind of a setup. If you look at the BSE oil and gas index, its been stuck in 8,000-9,000 area for the past few weeks and every time you see a small rally in stocks like Reliance and ONGC you get the feeling that something bigger is about to come.
At the first point of resistance the stock just falters and that’s never good for traders. So, we are still being a little conservative on this space. Going forward, once the Nifty gets closer to the lifetime highs this space will have to participate but for now we are not seeing the momentum that we would like in the oil and gas stocks. Therefore, I am recommending some of these stocks purely for extreme short-term. If you have to buy and hold then some of the other sectors have a much better setup and that’s where we would recommend.
Q: We are amongst the best performers within the Asian region and even globally. Is this tying in with December rally? Do you expect to see this globally or is India doing its own thing?
A: Yes, as we got into the month of November the markets were very well placed technically, seasonally and sentimentally. This is because after the big October decline and then the first half of November being quite sluggish, there was a feeling in the market that maybe we will see continuing consolidation. There were talks of the market going down to 5,400 which did not happen, but now the markets are looking much better.
Last December was a complete different story and we pointed it out in the first week. It did not play out but this time it seems that the seasonal factor is actually working locally and globally and even when some of the global markets, the kind of comeback some of these Asian markets have seen in the recent past is quite encouraging and we are seeing indications of a bull market starting in some of the other Asian markets as well.
Referring to markets like Hong Kong, Singapore and Taiwan would be great for our market because we can move in tandem. So yes, globally things are looking good. The US market might now start a period of underperformance. For the last two years the US markets have been doing well and the Asian markets moving gradually but the scenario is changing and that should be the case for the next six-eight months.
Q: Considering specific midcap stocks, are there any spaces that are looking prime to breakout because there has been a sectoral flavour to this midcap rally?
A: This midcap move has just started and the kind of gains that you could get over the next six months is something that you have not seen in years because a lot of stocks are breaking out from a base and this base formation took place almost six-eight months.
The best thing for a retail investor is to get into a midcap mutual fund, buy a basket of quality 30-50 stocks and that should lead to an appreciation of 20-25-30 percent over the next three-six months. Otherwise midcap infrastructure, midcap IT, some of the sugar stocks in this space, some of the fertiliser names. All these spaces have developed an excellent setup and most of the popular names in the F&O can be considered for short-term trading.
Q: The other stop-start space has been IT. You had one or two stocks doing well but as a basket they have not been a big support for the index. What lies ahead for them?
A: In the last one week, the CNX IT has cleared an important resistance in the form of 6,200 which is a positive development and going forward we could see the IT index move towards 6,800-6,900. Leadership, which has been missing so far, is likely to come back. We like the setup in stocks like Wipro and TCS, particularly. Infosys has been in a range for a long time so we do not recommend; it’s almost a buy on weakness and sell on strength which we have been adopting. Some of the other stocks in the space are looking good and CNX IT above 6,200 is great news for the Nifty.
Q: The way the rupee has moved against the dollar has disappointed a few people. Do you continue to see weakness there?
A: I am extremely surprised with what the rupee has done in the last two-two and a half week. To expect the rupee to trade at 55-55.5 when the Nifty is trading at 5,900 is something we did not think. The worst for the rupee is over. For now, the rupee is stuck in 54-56 range and once it breaks 54, which will happen over the next few weeks one should see the rupee appreciate down, up to levels of 51-51.5. So we are bullish for the rupee and what has happened in the last two weeks is temporary and will not continue for long.
Q: The greater confidence generator is not the levels the Nifty has got to, but the fact that it has made a higher base for itself each time. Considering 6,000-6,100 target, what kind of base should people work with?
A: Every time the market makes a high, obviously, the base and the support levels move higher. 5,800 to 5,820 becomes an immediate support for the market for the next two-two-and-a-half week but now 5,700 to 5,750 is an excellent base which traders could work with. I do not see the market test these levels till the Nifty achieves our target of 6,100-6,150.