China's downtrend makes India a good investment opportunity, says Dean Kim of William O'Neil

Kim mentioned that he has observed a surge in midcap stocks, especially in the Indian financial sector.

Dean Kim, from William O'Neil + Co, believes that India may be a good investment opportunity, as China is still experiencing a downtrend. However, Kim, while speaking to CNBC-TV18, mentioned that the Indian market needs to improve, as the stocks have seen a plateau at 200-DMA (daily moving average), and now the resistance is around 100-DMA.

He attributed the pull-down in the Indian market to the weak conditions in the US market, but with the US market now recovering, he believes there should be more interest in emerging markets, particularly India.

NYSE Gaining Strength

Kim also discussed the current rally on Wall Street, noting that both the S&P 500 and Nasdaq have cleared resistance. Many stocks, particularly midcap and IT stocks, are performing well. The market breadth, which was heavily damaged with only 18% of stocks trading above their 150-DMA two weeks ago, is starting to improve today, with 21% above the level.

"There may be one more rate hike in December, but given that the US 10-year bond yield is testing 5% level and US mortgage rates are at 8%, financial conditions are quite tight as of now. If the Federal Reserve were to hold course and not raise rates, that would be understandable," he said.

Mid & Smallcaps Shine

Kim mentioned that he has observed a surge in midcap stocks, especially in the Indian financial sector. Some companies such as CreditAccess Grameen, IndusInd Bank, L&T Finance, and Equitas Small Finance Bank, which are consumer finance companies, are performing exceedingly well. However, large-cap financial stocks, especially private ones, still have some distance to cover.

Kim also emphasised that he would continue to focus on nationalised banks such as Punjab National Bank. Moreover, small and midcap tech stocks are also looking promising at the moment.

He suggested that scrips like Dixon Tech, Persistent Systems and Sonata Software may perform well as they are breaking out from an early-stage base.

However, Kim noted that TCS and Infosys - larger tech companies - have a long way to go and may not outperform unless the US market stabilises further.