See value buying in cap good, banks: Modern Shares

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On the outlook for the Nifty and the best stocks and sectors to bet on in the month of August, Anil Manghnani from Modern Stock Brokers feels that capital goods and banks have been clearly out performers for the month. According to him, interest rate scenario has played out too much on the downside and there is lot of value buying emerging out there.

 

Neppolian Pillai from Modern Stock Brokers said, "We are in a huge pullback within a bear market. The top range for us could be around 16,000-1,7000 on the Sensex . 16,000 on Sensex and 4,650 to about 4,750 on the Nifty is more likely."

 

Excerpts from CNBC-TV18's exclusive interview with Anil Manghnani and Neppolian Pillai:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Q: Q: What is the call first on the Nifty? What kind of targets have you set out from 4,400 levels?

 

Manghnani: It's playing out a scenario, when the market broke through 17,000 Sensex levels. When the market breaks below the 50-week moving average, it inadvertently goes and touches the 200-week moving average. It missed on the Nifty, was at 3,730 and did about 3,790 but hit the Sensex, which was placed at 12,565. The last two bear markets of 2000-2001 or 1992-1993 made an attempt to go back and retest 50-week moving average after hitting the 200-week moving average before collapsing again.

 

It will not go beyond 4,750 levels, which is the first 50-week exponential moving average. If I stretch it out to the 50 simple moving averages that would come closer to about 5,071 corresponding levels. Looking at 4,750 on the Nifty, Sensex would be about 15,950 or 16,000 odd. In extreme rare case scenario, the corresponding 11,000 to 5,071 would be about 17,000 on the Sensex. At 16,000 or 4,750, there will be a lot of dips because of global uncertainties. It is the minimum level because that theory has played out in the last two bear markets. 

 

Q: What is your gut feeling if we do go to those kind of levels would it mark the end of this bearish patch or it would still qualify as a pullback in an overall weak market from which another downside or down leg could ensue?

 

Pillai: We are in a huge pullback within a bear market. As Anil Manghnani was explaining, the top range for us could be around 16,000-1,7000 on the Sensex. 16,000 on Sensex and 4,650 to about 4,750 on the Nifty is more likely. 5,000 is a far off target but upto around 4,750 is okay but after that you are going to get a down leg. At best, we will come and probably retest the bottom but we may not go to a new low. 3,700-3,800 on Nifty and about 12,500 to 11,800 on the Sensex is going to be the bottom for us. Surely this qualifies as a huge bear market pullback.

 

Q: When you do get back to 50-week moving averages, does the market generally go back and retest the 200-week average or go below that?

 

Manghnani: In 1992, it didn't go back to the lows. It came close enough but bounced back from before. Unfortunately in 2000-2001, it came back to retest around the time of September 11. It is tough to say whether we will have a crazy event that could take it below 12,500. So if you are using the alternation theory that many technical analysts tend to use, then we ignore the 2000-2001 sort of scenario where we actually went and made a new low. After having gone to the 50-week, we came back broke the 200-week and then went below due to September 11.

 

As per the alternation theory like Mr. Neppolian Pillai said, 'we shouldn't be playing on the theory. We are going to significantly break 12,500 levels. It maybe a sort of a wash and rinse scenario where if it breaks, a lot of people who get negative, sell-off completely and then the market would break back up on the upside. You could have a scenario like that. A bottom maybe in place but even for that bottom to be confirmed, after the leg up, the leg down might spend a long time. Again very similar to 1992 or 2000 where the market consolidated not in a narrow range. There could be a 15-20% upside or downside on the Nifty and the real bull market may start again two-years later. Two-three months down the road, the picture might get a little clearer.   

 

Q: What is the call on Capital goods, if you are buying which is the best stock?

Pillai: The theory of retracement pullback works in capital goods sector. We believed that capital goods and banking sectors could help the markets recover from the bottom of 12,500 to the current level of 15,000. These are the two sectors, which have been standouts. Most of the large cap stocks within the sector have already moved up but some of the smaller caps haven't moved.

 

Voltas with a bottom of around Rs 115, still available at Rs 128 level qualifies a buy between Rs 129 and Rs 120 level for a target of Rs 142-146.

 

Q: What do the charts looks like for the banks and what would be your best there for August?

Manghnani: Capital goods and banks have been clearly out performers for the month. The interest rate scenario has played out too much on the downside and there is lot of value buying emerging out there. I would go for Federal Bank and in every technical pullback whether it is led by short-covering or genuine buying, these two sectors should continue to out perform. It's still not too far from the most recent lows and is giving a break out today. If it can close above Rs 206, one can buy between Rs 204-Rs205 right up to Rs 181 and on the upside Rs 225 to Rs 232 could be a nice target.

 

Q: What is the oil sector telling you now and best bet there for August?

Pillai: The oil sector has been a clear out performer because of the strength of Reliance and a huge recovery in ONGC and oil marketing companies but they have run up already.

 

Essar oil, which was a star performer in the last bull run did not give up much on the downside from Rs 300 to just about Rs 160 on the downside, is currently around Rs 200. I would like to buy it between Rs 200 and Rs 180 levels for a target of roughly Rs 215 on the upside. A pure trading bet but that looks the best as of now because it is currently breaking out around the Rs 198 levels.

 

Q: How would you approach real estate sector now?

 

Manghnani: The sector has beaten down. From an investment point of view, it's not showing any sort of breakout. It is unfortunate that the two stocks make the majority of the Index, but one of them is really breaking out which is DLF . Even from a recent low of Rs 350 above Rs 500 that's still close to a 50% pullback from the lows. So DLF is definitely bringing the trading strength back in it.

 

DLF has already moved maybe you will probably want to look for something else. The second best would be Unitech because of the weightage it has in the Index. Go with Unitech, it has consolidated a lot in the Rs 150-160 range. It's just broken out on Friday above Rs 168 above a trend line. So, it may go back and retest a little bit on the downside but this range of Rs 168-150 is an accumulation zone. The stock is headed towards Rs 190-210 levels eventually.      

 

Q: Metals have been quite volatile, what is the stock that you are backing in that space?

Pillai: It is likely to be volatile. It is one sector on which we are bearish. This rally in the market is going to be led by a commodity fall. We are not going to touch this sector majorly.

 

Within the sector, Jindal Saw hasn't moved up between Rs 550 to around Rs 490, one could buy at Rs 50 band. Around Rs 595- Rs 635 could be the target on the upside. That is one stock, which looks okay on a trading bet, but if one is looking for investment opportunities within the sector then one will be disappointed. After a brief rally this sector is going to collapse again and that could lead the next leg of the market down.

 

Q: Is Auto oversold or charts still look weak despite the recent underperformance?

Manghnani: Oversold is a difficult term, it's used confusingly. Oversold or overbought means that the stock can spend a lot of time in that range without doing much whether overbought or oversold, it doesn't have to fall if its overbought or it doesn't have to bounce if its oversold.

 

There maybe more trading opportunities in the four wheelers segment. One will get trading bounces of 3-5% but surety of investment bounce backs is not there. The two-wheeler is suggesting more strength and even the numbers reflect that. So from an investment point to view, Tata Motors is beaten down and one can get a trading move. Rs 398-374 would be a buying range and target is Rs 429-439 but here I would definitely be very strict on my stop losses and Rs 370 would be a strict stoploss.