Nifty to test 5500 post 5-7% correction: JM Financial

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Nifty to test 5500 post 5-7% correction: JM Financial

The market is going through consolidation before breakout, says, Gautam Shah, CMT, Vice President-Financial Services at JM Financial. He sees the Nifty crossing 5,180 in the next few days. "The Nifty may see 5-7% brief correction from the zone of 5,270-5,300 and should thereafter go to 5,500."

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Mkts to remain strong; bet on midcaps: Ramesh Damani Strong interest in India from int'l investors: Kotak Mah Bk ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news ITC |

The market is going through consolidation before breakout, says, Gautam Shah, CMT, Vice President-Financial Services at JM Financial. He sees the Nifty crossing 5,180 in the next few days. "The Nifty may see 5-7% brief correction from the zone of 5,270-5,300 and should thereafter go to 5,500." An intermediate correction is healthy for an uptrend, he says, adding that the US market upmove is smoother than Indian markets. We are still not in the blowout phase, he says, advising investors to buy on dips.

Shah's medium-term target for Dow remains at 11,000. However, he feels it could correct 5-7% after hitting those levels.

He expects a 15% upside in the FMCG space in a few months and that the oil and gas index will lead the upmove from here.

Here is a verbatim transcript of the exclusive interview with Gautam Shah on CNBC-TV18. Also watch the accompanying video.

Q: Do you think this is a lull before the storm? The market has seemingly got a bit sideways last couple of sessions at 5,100. Do you think it will breakout on the way up?

A: Yes, I think so. I guess these short consolidations phases are actually positive for the overall trend because we have seen in the past that the markets run up, they consolidate for a few trading sessions and then they once again take out resistance levels. I think what has happened in the last couple of days can be only understood as consolidation - the fact that the market is sustaining above that support of 17,100, it is a short-term support level, which is about 5,074 on the Nifty. So we wouldn't be surprised if the markets actually breakout from current levels and move towards the October highs of 17,500, which is about 5,180 on the Nifty maybe in the next few trading sessions itself. We might witness a minor knee-jerk reaction from that point because an important recovery process has got completed. So you could see some profit booking there.

But thereafter this market has a lot of upside even from current levels. The market breath is missing, which is telling you that we are still far away from a blowout process and therefore any decline towards looks like a buying opportunity in the current market scenario.

Q: If it does manage to take out its intermediate high - 5,180 - what is the next reasonable target to set on the Nifty?

A: We have been talking about 5,270 to 5,300 on the Nifty as the next potential supply zone, which corresponds to about 18,000-18,300 on the Sensex. If you look at the market rally since March, every time the markets approach an important resistance, you are seeing a temporary 5-7% kind of a correction. So the zone, which I just mentioned - 5,270-5,300 - is a zone from where we could see another 5-7% kind of a correction because anyway the markets are overbought after the kind of run up that they have seen in the last two to three weeks and thereafter maybe we go to our medium-term target of 5,550. So there will be stops in between, there will be a lot of trading opportunities.

Maybe there is no big money to be made on the index itself but there will be many stocks that will move up 20-30-40% over the next couple of months giving us much better risk/rewards and much better opportunities.

Q: Some of your peers have warned that the market is looking exhausted at these levels. There is a risk of a double top formation at those intermediate highs. You don't concur to this view?

A: No, I don't. I think this market is very strong. If you look at most of the technical studies particularly on the Elliott front and on the patterns front and you don't want to take a call on patterns until they actually get formed. So, I would not be of that opinion. In fact my view is that we will actually take out 5,170-5,180 very comfortably and then move towards 5,300 levels.

Whatever correction that might come in is actually healthy for the broader uptrend because it actually helps in terms of a shake out. It helps to really move out the weaker hands. If you see the market action in the last couple of months, every bottom that the market is making, it is sustaining that. It is rebounding from close to the same and till we remain in this process of higher tops and higher bottoms, there is really no reason to fear a double top at this point.

Q: Do you think we have a durable medium-term floor at 4,550-4,600 where the market corrected to a few weeks back?

A: Yes, that now becomes a very important medium-term support for the market which coincides with about 15,300-15,500 on the Sensex. In fact last time we had pointed out an important pattern that had developed on the index chart, which gave you targets way beyond the lifetime highs of 2008. For those patterns to be intact, I think the market should sustain above the levels of 4,550-4,600. From a risk/reward perspective you are looking at 300 points on the downside, if the pattern has to really work and your upside is about 1,500 to 2,000 points on the Nifty.

So with that kind of a risk/reward, I am willing to buy this market even at current levels and definitely at every decline, which keeps coming in depending on the demand-supply and the situation under technical set up.

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