Likely to see consolidation from here on: Experts

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Gul Teckchandani has a view that  the market fundamentals still look good and the bull market will continue.

 

 

 

Gautam Shah of JM Financial Services on the other hand feels that sharp Sensex rise has caused a pullback and a consolidation is likely from hereon.

 

Excerpts from the exclusive interview with Gul Teckchandani and Gautam Shah:

 

Q: What did you make of trade in the last few days and what is it telling you about the next course for the market?

 

Teckchandani: I think the market on a fundamental basis still looks alright. Yes, there has been run up in several stocks way ahead of their fundamentals.  The momentum stocks which we have seen over the last couple of months are falling on their own weight and rightly so. Otherwise, if you look at the side counters, not necessarily the topline companies, they hold out a lot of promise.

 

Yes, we have taken a hit on the tech sector. I think that is largely the reason for the visible fall today. Somewhere possibly, it's too late to sell the tech sector and may be too early to buy. So, you got to time it now that at some point in time, we will have to look at it when valuations becomes very compelling because the underlying business still looks alright.

 

Fundamentally, I think I am still a bull. These are opportunities where possibly the volatility will help me to buy into whatever I want to.

 

Q: What is your sense, you have been talking about a trading top for the market.  Is the volatility suggesting that we are close to some kind of an intermediate top? What is your takeaway from the last few days of trade?

 

Shah: I guess the Sensex surged about 3,000 points in the last week of October. From 17,300 it went all the way to 20,200 and it has really forced a pullback in the last few trading sessions, which I think is quite understandable and acceptable. Within this pullback, even if the markets have to giveaway 30-35% of the entire upmove, that is where the support of 19,200 comes into play and which a lot of the market participants would be watching keenly in the next couple of trading sessions.

 

So, I think it looks like we are in a consolidation range. The fact that we are still making higher tops and higher bottoms and the markets are excitedly discounting positive news and any negative news flow globally or locally is not giving too much importance, the price is really exhibiting that. So based on that we have closed very close to important support levels today, that is 19,200 in Sensex and about 5,750 on the Nifty.

 

But my guess would be that we should remain in a trading range for the next few trading sessions. I guess this is an uptrend, which is going to mature going forward, unless we really break down below 19,200.

 

 

Q: Do you see further lower levels in the frontline tech pack?

 

Teckchandani: What normally happens and what I have seen from history is that when this kind of fall takes place, then you are normally approaching a place where the stock will start moving sideways. You will have to watch it and then look at the numbers again, revisit the concept and then start nibbling away slowly. This was the earlier bottom also in the case of at least Infosys , where it had touched before the results or around the time of the results. If this holds out and the stock moves sideways, then normally particularly in this blue chip kind of companies, you would start nibbling. That is what I meant that it is probably too late to sell and too early to buy.

  

Q: What is your sense from the technology charts, whether you look at Infosys or some of the midcap names like Rolta etc?

 

Shah: One thing is for sure that the leadership for this market has changed. A few months back, Infosys was falling 6% and the market just down 100 points is something, which did not happen. It really led the market move, whether on the upside or on the downside. In today's environment it is really the Reliance pack, which is really leading this market and that is where the leadership is coming from. I think every time there has been an upmove in technology, it is just not been confident on the charts, the volumes have not been great and resistance level has played a very important role. Most times stocks like Infy, TCS , Wipro have corrected from resistance.

 

In a bull market you want to stay with the leaders, you don't want to stay with the laggards. So, we have been advising people to avoid on technology and we continue to have this strategy. But yes, some of the second line technology stocks looked relatively interesting. But that is more of a stocks specific call, may be BFL Software or a Rolta could be considered from a short-term perspective

 

 

 

Q: How do you approach the Reliance pack now because that has become such a significant part of the markets' mindspace now? Not just Reliance Industries but RPL and RNRL ?

 

Gautam Shah: Frankly, we are not sure what is happening with RPL and RNRL and therefore, it is better to just avoid these stocks from a trading perspective at least for the time being because I believe blowouts in both these stocks could have taken place and a better strategy would be to search for blowouts in some of the other stocks whose uptrend has only matured in the recent past.

 

 But as a pack, I think it is really a game of 20-20 these days for the Reliance pack because one day it could be up 6% and the next day it could be down 4-5%. So, you really cannot take a confident positional call in any of these Reliance stocks. Yes, I think Reliance Industries would be the best pick in the sector, simply because it has been a very consistent mover unlike what REL or a Reliance Capital has done in the recent past. But I think it is purely a trading idea, you cannot take a very long-term call or even a medium-term call in the Reliance pack. And based on figures on a day-to-day basis, you just want to trade them on the long side, if the markets do not break down.

 

Q: What are your observations on this whole power universe? We have seen fantastic moves in many of the power stocks. Do you think some of them are excessively valued or you remain bullish on that space?

 

Gul Teckchandani: If you are talking about a little longer-term trend, which is over the next 12-24 months or even longer, 3-5 years, I think you will have to remain bullish on power. But if you are talking about immediate, I think they are running ahead of themselves. I do not think that we can necessarily say that 3-5 years out, we will keep holding these stocks and then the valuations look reasonable.

 

As of now, I think it is more to do with market fancy than to do with valuations. And I think there is a huge demand at every level for these stocks because I think the visibility is reasonable and this industry looks evenly poised to grow. So, you can probably draw parallels between tech of yesteryear and power of today. So, I think in that sense, longer-term people may make money, shorter-term by definition, you will have volatility.

 

Q: We have had a modest pullback from the recent highs. How high would you rate the chances of a further 10% fall from these levels because that is the question that might be exercising the mind of a lot of traders?

 

Gul Teckchandani: It is not difficult because you have the leading stocks today, which probably kind of held out the market, if they start correcting, then you have a 5-10% correction in the index though it is not too difficult to see that today because basically at 20,000 levels, you are talking about 1,000 points here or there, which I think has become a daily kind of move, if you add the moves up and down in a day today.

 

 So, clearly it is not at all difficult. People, who are trading this market, should actually give themselves 3,000-4,000 points rather than just saying that there is 1,000 points that I can take. And by that logic, you have to accordingly plan your trading moves in case you are trading and also your investment moves, because I think the idea is to make money and not to lose money and the volatility affords you that opportunity, both from a trading as well as from an investment perspective.

 

Q: The next 10% move for the Nifty is up or down for you?

 

Gautam Shah: I think for the last 7-8 trading sessions, the Nifty has broadly been in this 5,750-6,000 range and every time you test the lower range you see very sharp bouncebacks. We have seen sharp corrections in the US markets a couple of times in the recent past and despite that the markets have shrugged them off,and you have not broken the lower end of the range. Today, we have closed exactly at important support levels and I believe, which is a down right now.

 

So, in case we are to see a gap-down opening tomorrow because of the US markets, and in case we really sustain, then things can turn a bit ugly and you could lose some ground. But I strongly believe that unless 5,750 is broken on a closing basis.