Apr 20, 2012, 07.11 PM IST | Source: CNBC-TV18

See start of a monster rally if 5350 gets taken out: JM Fin

Gautam Shah, senior VP and technical analyst at JM Financial believes that it is a good time to be adding 'aggressive' longs in the market as he feels that the downside is just about 100-150 points, while the upside is more than 10%.

Gautam Shah, senior VP and technical analyst at JM Financial believes that it is a good time to be adding 'aggressive' longs in the market as he feels that the downside is just about 100-150 points, while the upside is more than 10%.

"We do believe that once the Nifty takes out this level of 5,350, which could happen in the next few trading sessions, then we could start a monster rally that takes the market all the way up to levels of 5,750 to 5,800," he told CNBC-TV18 in an interview.

Rate-sensitive stocks such as banks, autos and realty rose after the Reserve Bank of India (RBI) cut the repo rate by a higher-than-expected 50 basis points, while keeping the cash reserve ratio (CRR) unchanged.

Shah says the Bank Nifty has found a strong support at around the 10,000 levels.

NSE Bank Nifty, the main banking index, reversed losses and rose as much as 1.81% after the rate decision.

Shah expects the Index to breakout on the upside.

India Inc is now full swing into earnings with analysts expecting a mixed bag performance from corporates. In terms of sectoral picks, Shah does not prefer oil & gas space despite its recent underperformance.  

The sector is expected to be in the limelight today as energy major Reliance Industries, controlled by billionaire Mukesh Ambani, is expected to report its second successive drop in quarterly profit today, as refining margins are seen slipping to around USD 6 a barrel from USD 6.8 in the December quarter, and as gas output from its offshore fields slows further.

Instead, Shah expects ADAG stocks -- Reliance Infra and Reliance Communications to outperform ahead.

On the currency front, Shah does not see rupee depreciating sharply from current levels.

Below is an edited transcript of Shah's interview on CNBC-TV18. Also watch the attached videos.

Q: What is your takeaway from what has been a rather confusing looking screen? Where do you think the Nifty is pushing now? Is it breaking out of its range or is this looking like a slow breakdown?

A: The markets have been moving in a very tight range of about 200 points with 5,150 on the downside and 5,350 on the upside. Within this range there has been a lot of confusion for day traders or for short-term traders. But I think the medium-term setup of this market is still quite strong. The reason the markets have done what they have in the last few weeks is because of what happened in the month of January when the market moved up 20%. It happened very fast and the markets were looking unhealthy.

Q: What still keeps you bullish on the Nifty?

A: As a technician, I am quite satisfied with the way the markets have behaved in the last four-six weeks. After that huge January early February rally the market required price and time correction. While we have extended on the time correction, front market has not even done a 50% retracement of that entire move. Now we have got to a point wherein the markets are at the climax of this consolidation phase. The last couple of trading sessions have got a few positive figures on the charts which suggest that the markets can breakout.

Also, I do believe that while the markets have stayed in a range it has just quietly climbed a wall of worry. There has been a lot of negative news flow that has hit this market. Whether its IIP disappointment, Infosys shocker, issues on the GAAR front, US markets having corrected about 5% in the recent past and the fact that the rupee itself has depreciated quite a bit from that level of 48.5. So despite all these issues the markets are still trading at 5,300 which I would read as a positive sign. We do believe that once the Nifty takes out this level of 5,350 in the next few trading sessions then we could start a monster rally that takes the market all the way up to levels of 5,750 to 5,800. This is a good time to be adding longs in the market, because your downside is just about 100-150 points and your upside is more than 10%.

Q: What would cause you to change that or re-look that theory though are you waiting for the market to break a certain level on the downside? If it continues to grind then the feeling that it doesn’t have as much strength as you hoped?

A: I don’t think it can grind any more. The beauty of technical analysis is that sometimes the indicators give you an advance indication that the price move is going to breakout and that is the indication that we have had in the last few trading sessions and an indication that has come from some of the sectoral indices.

So while I would be sticking my neck out and calling for a breakout above 5,350 price wise it still has to happen on a closing basis with volumes and with momentum and I think it should happen over the next few trading sessions. On the flip side if the Nifty were to break 5,150 in the next few weeks which is quite unlikely then the set up completely changes in favour of the bears and all the long side bets are off the table. But as of now looking at the medium-term structure there are more chances of this market breaking out and this grind like activity is likely to end in a few days.

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