As Nifty touches new high, Rohit Srivastava says 19,030 is a major hurdle. Check out targets for RIL, SBI

According to the Elliott Wave study, usually the new phase goes on for as long as the first wave, but as future growth is unknown, it may be even longer. But the size tends to be close to equal.

Markets consist of five waves, and we are going through the third wave currently. From March, we are in wave 3 of a bull market, whereas the 2020-2023 consolidation is considered wave 2. The implications of such a view are that on a 2-3-year basis, we are set up for the Nifty to go to 35,000 from the low of 16,828 seen in March 2023. The major hurdle for the market comes in near 19,030, which is the trendline of the highs of 18,604 and 18,887 seen in October 2020 and December 2022, respectively, extended to the right on a chart.

So, broadly, just somewhere between 30,000 and 35,000 is where this third wave could go in and over a 2-3-year period. So that's the kind of mindset with which I'm approaching.

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Which sectors should investors bet on to ride this rally?

When we think about new sector leadership in the third wave, we don't think of a shift in leadership; that transformation happened in 2020. Defensives like FMCG, pharma and IT worked in the last decade. Now, the focus is on power, manufacturing, capital goods and defence.

These stocks have rallied strongly over the past three years but I don’t think valuations have stretched to uncomfortable levels compared to the historical average. For instance, Hindustan Aeronautics' price-to-earnings ratio is over 20x. Its earnings per share growth is more than 20 percent year-on-year. This means its PEG ratio is around 1, so it is not that expensive. PEG is the P/E ratio divided by the company’s earnings growth rate.

The valuation argument is tougher for maybe FMCG stocks that did very well in the last decade. But right now, some of them are trading at 80-90x P/E ratio, while earnings are growing at a much much slower pace. Then, is that a sector you should be invested in?

Is leading with banks your best bet?

I strongly believe that banks will always have the strength and will do well in any case. However, banking stocks cannot outperform defence, capital goods and manufacturing companies in the Make-in-India story. When it comes to choosing banks, one must be selective while picking stocks.

Is the US the bond market supportive and showing strength from the global perspective?

Before the debt limit was raised, the S&P 500 had 420,000 short contracts. That has now been reduced to roughly 239,300. This happened as the debt ceiling was raised, which fuelled a surge in the US market. The same thing is happening with US bonds; they have massive short positions and are simply waiting for the trigger.

Once you get a clear sign that core inflation has dropped, bond yields will also follow. The 10-year yields has already made multiple lower highs. In October 2022, it was 4.33 percent; in March, it was 4.09 percent; and now, it is near 3.85 percent. So, it is making a lower high each time. So, my sense is that yields have possibly peaked.

What are the targets for Reliance and SBI, which are index heavyweights?

RIL needs to close above Rs 2,660 in order to indicate that the consolidation is over. If it moves past 2,660, it will reach even greater levels, maybe around 3,000. SBI, on the other hand, needs to close above 600, and then it can possibly go towards 660 or 670.

Note: Rohit Srivastava is not an investment advisor and his views are personal.

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