Nifty poised for 6300, Bank Nifty support at 11,800: JM Fin

The Nifty index is poised for an upswing to 6300, feels Gautam Shah of JM Financial. In an interview to CNBC-TV18, he said the index had a downside of less than 100 points from current levels.

Also read: Nifty to be rangebound; short sell below 5800: Sukhani

Shah expects the Nifty to rally 200-300 points swiftly once it tops 5950. He sees the rally in midcaps resuming once Nifty tops 6000. He is advising investors to invest in midcap schemes of mutual funds. Shah expects Bank Nifty to find support at 11,800.

Below is the edited transcript of Shah's interview to CNBC-TV18. Q: Do you think the correction is over for the Nifty?
A: There is a saying- 'The night is the darkest just before dawn'. I think this is something that has really been applicable to our market in the last few weeks because the market-related news flow hasn't been great. Fundamentally, things have not been great in terms of news flow and obviously a lot of people are pointing to that. The Budget with all the expectations was almost a non-event and the rupee reached the levels that were not very comfortable. Despite, all these factors, we are still trading at a level of 5,900.
As things stand, we believe that technically, seasonally and sentimentally the market is on a strong wicket and we remain as optimistic as ever. It is a V-shaped reversal, the way the market has seen a recovery in the last two, two and a half weeks. First one was just after the Budget and there was one more yesterday. These V-shaped reversals are a part and parcel of bull markets. They actually give an indication that the buyers are definitely there at lower levels.
This is a market that is setting up for a much bigger move. Earlier, we were not so optimistic on lifetime highs because we thought 6,100-6,150 will be a problem and the market did see a correction from that zone. However, now we feel that the market could actually see a hurdle free run towards a level of 6,300 because the set up is absolutely perfect on the charts. Sentimentally, if one sees the Put call distribution in the market and with the way the strong hands have been hedging themselves, it is something that we have not seen for a long time. All of these factors suggest that the market is actually setting up for a much bigger rally.
In the near-term 5,950-5,970 could be a minor resistance from where the market corrected sometime back. However, we feel that in next many trading sessions one should see the Nifty clear 5,750 then move towards the January high of 6,100 and eventually towards 6,300-6,350. Q: How can you tell though? Usually sentiment and outlook picks up when we get to the 5,900-5,950 zone. What's different from the last multiple occasions where the market has made this attempt?
A: Sentiment is quite funny because we have been around this 5,900-6,000 level a few times in the last few months. Every time we have traded at those levels, there has been a lot of optimism in the market. If you speak to anyone, they would be talking about the market reaching 6,300-6,350 but this time around, as we stand close to 6,000 the scenario is completely different. People are a little more pessimistic. The Put call distribution of the market really explains as to what is really happening and what people are doing. That could be the ideal platform for the market to start a big move.
What happened in the second half yesterday, was a good example because the market just does not want to fall on any negative news flow. This happened even after the Budget and that is the reason we feel that the market is setting up for a big move. We think the downside is not even more than 100 points from here.
_PAGEBREAK_ Q: For a positional trader, you would start taking long positions on the Nifty now for the rest of the series and going into the next one?
A: Yes. I think so. Infact, this is something that we advice to our clients. Even yesterday in the first half, the market saw a phenomenal recovery but at 5900-5930 levels, if one wants to be just a little more sure, one could wait for the Nifty to clear 5,950-5,970. Once that happens, 200 to 300 point upmove is likely really fast. Looking at the set-up, technically, sentimentally, and seasonally we think the odds are clearly in favour of the bulls right now.

Q: If that were to happen, would it be a narrow move once again? Midcaps have got decimated over the last one month and they were nowhere close to near-lifetime highs or even 52 week highs. Would it continue to be a bipolar market in which portfolios of lot of retail investors do not go up as much as the Nifty?
A: That is right and that has been the concern. We have been a little surprised with the way some of the midcaps and smallcaps have corrected. While the indices have corrected, the midcap and smallcap index has retraced more than 70 percent of the rally that we saw in the second half. So, clearly the confidence about market participants to buy into these stocks is not there right now. But that will gradually build and once the Nifty clears 6,000 once again one, we will have a lot of bullish stocks. That would be the time wherein one should be looking at the midcaps. Yesterday was a good example. The Nifty moved up so significantly and yet the smallcap index was actually in the red and the midcap index underperformed. Yes, this trend could continue for the next one, one and half weeks but that is from a trading perspective.
For an investor, this is a great time to be buying into midcap stocks. One has to be extremely choosy when you buy into them. That is the reason we have been recommending to buy into a midcap mutual fund wherein one gets into a basket of 40-50 stocks wherein it would not matter if 5-6 stocks do not do well. That is the right approach for the next one to one and half years. Life is not going to end at 6,300-6,350. I think 2013 is likely to be the year wherein the Nifty could even test levels of 6,700. If we are talking of a 700-800 points rally on the Nifty from current levels, the midcap basket can easily give returns to the tune of 25 to 30 percent. So, while we could ignore this sector for now, but as an investor one should be getting into it through a mutual fund. Q: What do you see on the global charts right now because the Dow and S&P have been moving to fresh highs. Do you see that strength continuing?
A: The global markets have clearly done well. The Dow has had a life time high. It has cleared 14,200 and it has cleared it with a lot of strength. It could have acted as an important resistance but because the Dow is just a 30 stock index, it is more important that we actually look at the broader markets in the US which is the S&P 500. That index is just about 10-15 points away from its life time high and once the S&P 500 clears 1,675-1,676, it is going to be an important global development.
My only concern right now is that the US markets are clearly looking extremely overbought. However, we have seen in the past that momentum driven markets don’t have to correct just because they are overbought. However, I do get the feeling that around levels of 1680-1690 on the S&P 500, there could be a short correction. But I don’t think the emerging markets are really going to be affected too much. Other Asian market indices, just like India are setting up for a big move and that big move could be as much as 12 to 15 percent from current levels. While I am not very optimistic on gains for the US markets from here, I do feel that the emerging pack will actually take over atleast for the rest of 2013. Q: There has also been the question of leadership for this market. The banking space has been fairly volatile. There hasn't been that much support from the autos. Reliance promised something and then didn't really move. What patches or what sector standard is the leader for the markets up move?
A: With the kind of trend that we have seen in the last one, one-and-half years whether the Nifty goes up or down, one always holds banking responsible. One could say that the banking index was the culprit for the last two, two-and-half weeks of correction on the Nifty. However, let us not forget, in the second half of last year, the banking index was the best performer. It was almost a vertical upmove and the move was so large that at some point of time, the banking index had to retrace its gains. With what has happened in the last three-three and half weeks for the banking index, we think that retracement has got completed. This now means that the banking index is setting up for a much larger move. Despite the news flow in the banking stocks, some of these stocks closed so well yesterday. For the banking index itself, we maintain our target of 13,000-13,300 and we don't see the banking index go too much lower than 11,600-11,800. Given this scenario,  banking clearly was and remains our best pick in the market.
Secondly, the IT index is the one that really pleases us because in bad time, that is when the Nifty saw correction from 6,100 to 5,650, the IT Index was rock steady. Usually, when a sector does well in bad times, it is an indication that it will be one of the best performers in good times. Yes, a few stocks have corrected in the last one week but that is really psychological in nature. Infosys is testing the level of Rs 3,000 and it is a very important development.
CNX IT index moving to 7,400-7,500 was a technical resistance and therefore we have seen a small pullback. Eventually, we see the CNX IT index hit a level of 8,000-8,200. Therefore, we believe that IT and banking would be the two pillars for the market if and when it were to move towards the level of 6,300-6,350. Q: It is always difficult to put a timeline to it but how soon do you see things panning out if indeed the market is going to make a much stronger move for itself? Moves have been initiated within a very short period of time. Within one week, the market could be into very different places from Monday to Friday?
A: Yes. What is interesting is that volatility has picked up substantially. These days, one sees moves of 50-70-100 points happening too many times. A few months back the Nifty use to trade within a 20 point band for a day and infact for many trading sessions. Therefore, it was quite boring. But now the scenario has changed completely. Because the set-up is now ripe, based on many technical factors we could be looking at life highs by the middle of this year. So, maybe by the first half of June or maybe earlier, we could be looking at levels of 6,350 and higher.