The Indian stock market has had a phenomenal run over the past four-five months, rallying about 20 percent since February lows.
But a top technical analyst who had correctly forecast the move and recently said the market was in the midst of a 'raging bull run' believes the rally has more legs to go.
"There is no indication to suggest the market is topping out," Gautam Shah, Associate Director and Technical Analyst, JM Financial told CNBC-TV18. "The ongoing move is something unique and special. The market has passed test of characters such as Rexit and Brexit. The best of the bull market is yet to come."
In line with his previous calls, Shah continued to pick auto, banking and metal stocks as ones he would bet on but added that some FMCG stocks were also seeing "lovely" breakouts.
He attributed part of the market move to the Dow Jones and S&P 500 making record highs, and said this move was "something huge". "Over the next 12-18 months, you could see the US markets rallying 15-20 percent. In such a move, India has to outperform."
Below is the verbatim transcript of Gautam Shah’s interview to Sonia Shenoy & Reema Tendulkar.
Reema: The earnings season has not been as robust as what we had earlier anticipated. Do you think in that sense, perhaps, it might put a near-term top on the markets? What are the charts telling you?
A: I do not think there is any indication on the charts right now to suggest that the market is topping out. This uptrend that we are seeing right now is pretty unique and pretty special because the markets have really passed a number of tests of character including Rexit and Brexit as people call it. It has been supported by the stubbornness of the shorts in the systems and it has been aided by the kind of stability that we have seen in global markets.
However, the way the charts are placed right now, we would like to believe that the best of this bull market is yet to come. The kind of breakout that we have seen in the last couple of months, I referred to them in our last interaction as well, those breakouts suggest that the market is headed much higher. Every time the indices have come to an important resistance, they have just paused; they have not even seen a retracement of 3-4 percent, which tells you how strong the market is.
In fact, we were working with a stopover target of 8,600-8,650 and as the market got to that level in the last one week, you must have noticed the way the indices have just paused and for the last seven trading sessions, the Nifty has been trading in this 100 point band. The supply around this 8,600 number has got gradually absorbed and now with none of the studies really overbought, we would like to believe that in the next one week, the Nifty could actually take out this zone of 8,600-8,650 and head towards the year-end target of 9,100 that we have been maintaining for quite some time now.
Therefore, we remain as bullish as ever. This is something that really reminds us of 2003 and the participation in the market place, if you really look at the Futures and Options (F&O) data, apart from the foreign institutional investors (FII), all other major market participants are having a net short in this market right now. So, that really tells you that we are far away from the second stage of this bull market and therefore, having created a strong base around 8,300-8,400 any small decline should be used as a buying opportunity.
Sonia: As bullish as ever. I remember when we spoke at the start of June, you said we are in the midst of a raging bull market, I will not forget those words and that is what we are pretty much staring at. It has been ten consecutive sessions of buying by FIIs, so that is the momentum we have seen but what are the candidates who could lead to this Nifty going to 9,100 because we are facing some pressure from IT? Reliance Industries is not doing anything great, banks we still have not seen earnings so we do not know which way banks could head. On the charts, who do you think the leaders could be?
A: Bank Nifty has been our favourite for a very long time now but the move has been too far too soon. On the day of the Brexit, the Bank Nifty was at 17,000 and then just a couple of days back it was testing levels of 19,000. So, that is a 2,000 point move that has already played out in the Bank Nifty in a few weeks. And around this 19,000 number, there is some resistance so I am not surprised that the Bank Nifty is just consolidating around these levels. The public sector undertaking (PSU) banks have actually run very hard. They have turned overbought on the charts and that is the reason they are seeing some give back in the last few days and this might continue, because the focus is now going to shift back to the private banking names and since they have underperformed to a certain extent, in the next coming weeks and coming months, you could actually see the private banks do extremely well.
But on the Bank Nifty itself, I think some consolidation, as I said, around these levels will be healthy and once the Bank Nifty takes out levels of 19,000-19,200, it can actually eye that target of about 20,500 that we have for this calendar year. So, we remain bullish on the Bank Nifty and every small decline there towards 18,400-18,500 should be used as a buying opportunity.
Aside of that the sector that we really like and continue to be bullish on is auto. Very quietly, in the last few trading sessions the auto index has actually hit a new 52-week high, in fact a new lifetime high. This is probably the first major largecap index to have done that. Most other sectoral indices and the indices themselves are still about 5-7 percent away, but auto index, the kind of setup it has, another 10-12 percent over the next two-three months looks very doable. However, it is a very clean mover. Even on bad days, you see auto stocks doing well and among the auto stocks, the two-wheelers are our favourites. So, I would say banking, auto and to a certain extent metals, these three would probably be our best picks for the next three-six months.
Reema: The stock of today, to some extent, is ITC post its numbers. It is up 1-1.5 percent. What is the chart of ITC as well as the other fast-moving consumer goods (FMCG) majors telling you?
A: I cannot comment about specific stocks, but the FMCG index has done very well in the last couple of months. Some of the stocks in the space have seen lovely breakouts and these breakouts suggest that they are going to move in tandem with the indices. Usually, you would want to believe that sectors like FMCG and pharmaceuticals are the safe haven spaces and therefore, they might not participate, but right now, FMCG has really turned into high beta. Look at the kind of moves some of these non-index stocks have seen. Therefore, that is the reason I believe that while we are not so positive ITC, some of the other stocks in the index have the potential to go up about 15 percent from current levels. So yes, a small portion of your portfolio has to be in FMCG, but we are more kicked by some of the other sectors that we mentioned because there the beta is very high and the moves are much larger and stronger.
Sonia: Recently you have got your crystal ball gazing bang on. When we spoke to you last, you said the Dow would cross 18,000, the Standard and Poor (S&P) would cross 2,150 and that is exactly what has happened. Do you expect more upsides on those charts?
A: That is really the special move right now and that is something which has really got the world very stable. If you look at the US market volatility index (VIX), it is trading at a multi-month low. If I am not wrong, it is trading at levels of 11.50-11.7 which has not been seen in a very long time and it actually tells you that there is a lot of stability in the system right now. What US markets have done in the last two weeks is something huge and this breakout has happened after two years of consolidation or two years of range bound action. And Dow crossing 18,500 and S&P getting past 2,100 suggests that over the next 12-18 months, you could easily see 15-20 percent move. So, the Dow can actually move out of the teens and we have with this target of about 20,000-20,500 there. The S&P 500 could be headed to levels of 2,350-2,400.
However, if these moves play out, India has to outperform, has to move in tandem. In fact, if you look at the many years, whenever global markets have been stable, Indian markets generally do much better. They tend to outperform and a good example is the last couple of weeks and not only the US markets, if you look at some of the Asian markets, Hong Kong, Singapore, Taiwan, they have only seen breakouts in the last seven-ten trading sessions and these are breakouts which have targets that are 10 percent away. So while the Nifty saw its breakout around levels of 8,000, some of other Asian markets have only done it now and that is the sort of indication that Indian markets cannot lose too much ground from here. So, this is probably the reason we believe that 8,300-8,400 on the Nifty is the new base and all dips towards the same should be a good buy in terms of risk reward.
Reema: How long do you think the IT stocks or the sector will underperform, because in case it is underperforming over the longer term, does it make sense for investors to get out of their positions in IT stocks and enter into banks, autos and metals which are likely to continue with their uptrend?
A: Absolutely, in bull markets, you want to be in sectors that are doing well, that are moving in tandem with the indices and with what IT has done in the last 6-12 months, there is no reason to have a large chunk of it in your portfolio. Yes, it might not fall too much because this is a market which is trading on high momentum so at some point of time, you will keep seeing these rebounds in the IT space, but broadly, this underperformance is really going to continue for the next 3-6 months and it makes absolute sense to move out of IT and get into some of the other major high beta names. So, IT is probably the only index in the market which is really underperforming. Till a couple of weeks back even pharmaceuticals was not doing too well, but this move of the last one week has got the setup better out there as well.