Mkt may start new uptrend in August: Quant Broking

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Q: The past fortnight saw a big fall and then a bit recovery in beta basically sectors like metals, real estate, and infrastructure. How would you trade them now?

A: Based on the inter-market picture, two of our focal areas have been and continue to be metals and technology. Momentum in metals could resume soon.  If you look at the base metals on LME when the recent flutter happened in global markets, base metals held quite well. The brunt of the selling was concentrated on crude oil. So metal patterns are quite intact so the domestic metals stocks have completed a very deep correction and they should be quite poised. As I said earlier, the middle of August is the timeframe we are looking for the beginning of the sustainable uptrend so the next sector is technology. The big theme out there is the situation of secular change in the outperformance structure of the Nasdaq versus the Dow. If you look at simple measures like if you take a ratio of the Nasdaq versus the Dow, it has broken out of an eight-year structure of late. This could indicate that the next few years, we could see the Nasdaq outperforming the Dow. Like cyclical recoveries in the US the Nasdaq might outperform the Dow so that background can keep the limelight on the technology stocks. In India if you see the technology peak happened in 2007, a year before the market peak in 2008. So that way their downward processes were much more matured and they are more poised to break through the 2007 highs.

Q: The stock which led the market down to sub 4000 was Reliance as it went down close to Rs 1700. Do you think it bottomed out there because it found its way back to Rs 1950 again?

A: Yes. Actually, I do not have very strong call on Reliance. Reliance was one of the stocks which has completely broken below the post election gap. However, I do not have a very strong call on Reliance as of now.

Q: Among the heavyweights which do you think can lead the market back to 4480-4500? When you look at the top four heavyweights: NTPC, Bharti, ICICI Bank?

A: We are not expecting a great leadership from the banking side. One stock which is right now a heavyweight stock is ITC, it can be a significant contributor. For ITC, around Rs 222-221 is a long-term breakout point. Once it crosses through that, it is some kind of a three-year breakout in the stock. The background does not seem to be that great for FMCG looking at the grave situation of the monsoon or whatever but if I ignore that and look at the price strength, a Rs 221 break on ITC could project something like Rs 360 over the next six to nine months. That's the stock, which can be good contributor to the Nifty and the trigger is Rs 221.

The other places could be the technology: Infosys can do it. I do not have strong calls on individual stocks as of now though.

So generally when such a moving average compression happens, it is in advance indication the longer sharper move could be unfolding sooner. Something similar happened last time in January 2008 and after that you have seen a longer sharper decline so the way the market has broken out above the cluster, we are giving very good scope that a long, sharp move is unfolding on the upside this time. There seems to be a background where the developed equities and commodities can revert to pre-Lehman levels. BRIC (Brazil, Russia, India, and China) countries have already done it so the developed equities and the commodities might be doing that over the medium term.