JM Fin sees bullish market setup; advises selling IT

The BSE Sensex and Nifty rose on Wednesday for a fourth consecutive session even as expectations of stimulus action this week by the US Federal Reserve and the European Central Bank fade, and following signs of deepening Asian economic stress.

Few analysts now expect the Fed to actually launch more easing at the end of its two-day meeting later on Wednesday, but it is expected to reinforce a commitment to an accommodative stance and could drop hints about more measures in coming weeks

Shah expects the US market to get back to the 2012 highs soon.

Back home, banking stocks fell Tuesday after the central bank left the key rate flat, saying that a rate cut at this stage would "only aggravate inflationary impulses without stimulating growth."

Shah expects the Bank Nifty to gradually move higher to 11,000. “I think the defensives will continue being the preferred pick till the time market remains rangebound,” he told CNBC-TV18 in an interview.

He advises selling IT counters on any rallies.  He sees limited downside in capital goods sector with a 35% return potential.

On the currency front, Shah feels the rupee is likely to have bottomed out.

Below is the edited transcript of Shah’s interview with CNBC-TV18.

Q: What’s your sense of how markets may move in August from hereon? Do you think we get back to that level of 5350 plus?

A: The markets have broadly been in a range for the last many weeks. Within the range itself you have seen a lot of volatility on account of news flow on the local and global front and the news flow has been adverse. So, it’s very easy to take a bearish stance on the market every time it gets closer to support levels. But, the markets are respecting both support and resistance, which is an indication that we are in a contracting kind of a scenario.

Looking at what happened in the last one week we are of the opinion that the setup is more bullish at this point of time. The way Nifty took out 5,180-5,200 resistance on Monday; I thought that was a very positive sign. It sets it up for a move back into that resistance area of 5,350-5,400.

For now we would maintain a bullish stance. Any and every decline looks like a buying opportunity. We get a lot of confidence looking at sectors, rupee and the global setup, which was a concern sometime before. Therefore, once the very small resistance of 5,270 on the Nifty gets taken out the market can move up by about 150-200 points easily.

Q: Are you increasingly getting the sense that the big directional thrusts are no longer coming? Every time we get close to those supports people are talking about a big breakdown or a big breakout, but the market does not seem to be obliging with either.

A: Absolutely and that is the reason this is a contracting kind of a scenario wherein we are trading. This has been the case for the last six-eight months. 5,000-5,050 on the Nifty was an importance resistance and we saw the way the market has rebounded from that particular zone.

Last time we had capped the upside to about 5,350-5,400 from where the market has corrected, so we are still in that 300-350 point band. If you look at the price action of the last 6-8 months the market is indeed making higher bottoms whether it was 4,500 in December and then 4,800 in May and what has happened a couple of weeks back at levels of 5,000.

There is support for the market at lower levels, but looking at the chart of the rupee and some of the sectoral indices we are of the opinion that we should be snapping out of this large range sometime in the next 4-6 weeks. Once that happens, a multi-month trend could actually start. Our bias as of now is on the upside, but for that the Nifty will have to clear 5,400 on a closing basis. Once that happens you could see the markets do well for as much as 4-6 months on the trot.

Q: What sense are you getting from the global charts? Do you think they have improved or is it just a temporary spike in the last few days?

A: They have improved quite a bit. Last time we had presented a very negative setup for global markets. We had particularly pointed out markets like Spain and China and interestingly both these markets are at multi-year lows. Spain hit a decade low just a couple of weeks back and it has rebounded. Despite such developments you have most of the popular global markets quite steady.

The rally in the US and European markets last week looked very, very convincing on the charts. Now I am changing my stance a little bit and I just get the feeling that you would see the US markets get back to the highs that it tested a couple of months back.