Gautam Shah at JM Morgan Stanley Financial Services has a medium-term target for Sensex at 13,200. He says that the Nifty could gain another 50-60 points from current levels, and adds that a target of 3,800 looks achievable.

He says that midcaps and smallcaps should start performing now, and advises to exit frontliners and enter midcaps.

Shah sees 40-50% return over the next one year in midcap cement stocks, and is bullish on sugar, paper and midcap infrastructure stocks, going forward.

Excerpts from CNBC-TV18’s exclusive interview with Gautam Shah:

A: Yes, it looks like that with the way the trend has been in the last few weeks. The Sensex has clearly outperformed the Nifty. We have been consolidating sideways for the last three trading sessions.

I think it looks very likely that the Nifty will gain by about 50-60 points in the near-term and surpass its recent high. Even on the Sensex, I think the next level we are looking at is about 13,200. That is a very important supply point for this market, and that is where I think we might just see a stop to this rally.

A: The basic tenets of the Dow theory, which a lot of market technicians use, of volume going along with the trend and market averages confirming each other, has not been the case in this rally so far. Therefore, clearly it has been a suspect, but you don’t see a market top without midcaps and smallcaps not participating.

So without their backing, we are already close to 13,000. If midcaps and smallcaps were to participate, which I think should be the case in the near-term, we could rally a little more. Therefore, the best strategy at current levels would be to exit largecaps and possibly gradually get into quality midcaps stocks.

A: The concept of a trailing stop loss is very important in today’s market scenario. We are seeing higher tops and higher bottoms being made, and therefore you have to be very strict with your support levels and your stop loss levels.

3800 on the Nifty on the upside looks very achievable. That is the level which we will watch for on the upside. Yes, I would remain long. Possibly 3660 level on the downside for the Nifty would be the support level to watch from a 2-3 week perspective going forward.

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