By Mazhar Mohammad
Indian benchmark indices signed off the years in style after netting a gain of around 27 percent in the year gone by. This kind of return, especially on the back of underperformance in the preceding two years, may not appear to be excessive return.
There were many such occasion in the past since 1980 when the market has continued to deliver in the subsequent year even after clocking 25 percent plus kind of returns.
Hence, this rally may well get extended into the early part of the New Year but the moot question in front of the investor is to what extent.
For this purpose, if we dissect the long-term trends then we will know that this market is staring at a critical resistance level placed around 10,650 and in need of a breakout.
Hence, for bigger up moves, the index needs to witness a sustainable breakout above the said level. In case such a breakout takes place, then bulls can easily take the indices to much higher levels and may even head towards 11,200 levels on the Nifty.
Is market ready for such a breakout?
Albeit, there may not be any reversal signs as of now, the market has already witnessed a relentless upmove from December 2016 lows of 7,893 to 10,500 without a proper correction both price wise as well as time wise.
The price action suggests strong momentum but at the same time, it also sends a tough message to the participants that major part of the upmove before the next leg of bigger downswing might have completed.
Hence, traders at these levels should not create fresh bets on the long side with the hope of similar performance. Our studies of different technical parameters on the long-term charts are creating a feeling of unease as most of them are already in overbought zones.
These levels should get further stretched on the upside in case market breaks out which will compel us to conclude that the rally should not sustain without a prolonged pause or meaningful correction.
Even simple fundamental parameters are suggesting limited upsides as Dividend yield on Sensex scripts is a meagre 1 percent, whereas the price-to-book value is at 3 times and historical Price to Earnings ratio is at 25x.
With this kind of limitations, indices may not have much leg room to move on the upside.
What Strategy suits for 2018?
Adopting a contrarian strategy can be better for a bet for the year 2018 which should reward investors in case market turns out to be very volatile and turbulent.
In the midst of this strong bull market, certain sectors like PSU Banking and Pharma were almost reeling under the bear market kind of scenario where IT was out of favour with low institutional interest.
Hence, one main advantage of going long in select pockets from these sectors is that downside will be insulated even if the market is going to correct drastically.
Especially in case of PSU Banking space where efforts are being made to clean up the Balance Sheets a decent price appreciation can be expected over a period of time by focusing on stocks like Punjab National Bank and BOB.
Similarly one should look to find long-term investment opportunities in the recently listed Insurance players which slipped below their IPO prices and appears to be stabilising now.
Besides, leadership may change from Financials especially from NBFCs and Housing Finance Companies as they have underperformed the last leg of rally despite Nifty50 made new lifetime highs. At best they can remain market performers.
Top 5 stocks which can give up to 16% return in the short term:
HUL: BUY| Target Rs1465| Stop Loss Rs1337| Return 7%
After hitting new lifetime highs this counter appears to have witnessed a breakout above its 4-month-old channel which is projecting a target placed around Rs1,465 levels.
As long as it sustains above Rs1,340 levels one can retain a positive outlook and buy for the said target. A Stop Loss should be placed below Rs1,337 on a closing basis.
Tata Steel: BUY| Target Rs793| Stop Loss Rs690| Return 8%
This counter, a couple of days back, witnessed a channel breakout signalling the end of correction in which it slipped towards Rs660 levels.
However, Rs735 is looking like a critical resistance on the long-term charts and once this hurdle is cleared on a closing basis its next logical target is placed at Rs793.
As the long-term trend is intact in this counter, positional traders should create fresh long positions in anticipation of a breakout for a target of Rs790 with a stop below Rs690 on closing basis.
Gruh Finance: BUY| Target Rs550| Stop Loss Rs490| Return 9%
Long-term charts on this counter are looking quite interesting as a fall of 10 percent from its life time highs of Rs553 appears to be providing a good opportunity for the Bulls around Rs500.
The counter is slowly seeing some sort of accumulation because, for the last three months, the counter closed around Rs500 with a positive bias.
As on daily charts, a trend line breakout also witnessed. Positional traders should long on the stock for initial targets of Rs550 with a stop below Rs490 on a closing basis.
Satin Credit: BUY| Target Rs534| Stop Loss Rs437| Return 16%
Off late, this counter was buzzing on the back of technical breakouts and after a brief pause, it now appears that it has resumed its uptrend with a price and volume breakout in the last Wednesday’s session.
Hence, last two days of weakness should be considered as one more opportunity to go long in the counter for a target of Rs534 with a stop placed below Rs437 on a closing basis.
NMDC: BUY| Target Rs152| Stop Loss Rs133| Return 11%
This counter has registered a breakout on higher volumes in last Tuesday session and after the breakout, it appears that it is in pause mode providing one more opportunity to go long.
Hence, short-term traders should make use of the current weakness to go long for a target of 152 with a stop below 133 on a closing basis.Disclaimer:
The author is Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in. The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.