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Correction likely as Nifty near psychological hurdle of 18,000, says Santosh Meena of Swastika Investmart

A meaningful correction is likely in October but a strong bounce-back is expected after that, and there is a high probability that the BSE Sensex may hit 65,000 by the end of FY22, Meena says.

September 27, 2021 / 01:24 PM IST

A short-term 5-15 percent correction is around the corner as the market is overstretched after a vertical move, but this will be a great buying opportunity, Santosh Meena, Head of Research, Swastika Investmart says.

He said global factors may trigger correction, and rising US bond yields after the Fed declares the timeline of tapering may cause near-term volatility.

His investment mantra for new investors is to stick with quality stocks and have a well-diversified portfolio. "I believe SIP (Systematic Investment Plan) could do a miracle for them without worrying about market volatility," said Meena, who has more than 10 years of experience in the financial markets with expertise in technical & derivative analysis, told Moneycontrol in an interview.

Edited Excerpts:

What is your investment mantra for new investors?

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The beauty of this bull market is that it is not dependent on institutional investors where it is getting big support from retail investors, but my biggest worry is that many of them are new investors who didn't see any bear market and how will they react if they will see any meaningful correction. My investment mantra for new investors is to stick with quality stocks and should have a well-diversified portfolio. I believe SIP (Systematic Investment Plan) could do a miracle for them without worrying about market volatility.

Last week’s rally was led by Energy, IT, FMCG, and Infra stocks. But banks, auto and Metals were underperformers. What are the sectors to watch out for this week?

I believe metals may continue to underperform however charts of Auto and Banking stocks are looking interesting where if the market continues its bullish momentum then these sectors can outperform but even they remain vulnerable to fall if the market starts to correct from here. Fertilizer stocks are showing good strength and may outperform in the coming week.

What are the levels one can expect on the Nifty on expiry day this week? What does the F&O data indicate?

It would be interesting to see the behaviour of the Nifty near the 18,000 mark and if it manages to cross this level then we can expect a level of 18,200 which is a critical hurdle while 17,800-17,750 will be an immediate demand zone; below this, we can expect a move towards 17,500-17,450 zone.

If I talk about the derivative data then FIIs' long exposure in the index future stands at 60 percent and PCR (Put Call Ratio) is at 1.27 which is still giving comfort despite a big rally. In terms of open interest also, 18,000 is an important hurdle as 18000CE has a built-up of 53 lakh shares while open interest concentration in the Put side is well distributed in the range of 17,800-17,500.

Sensex finally hit 60,000. Do you expect it to hit 65,000 by FY22-end. If not, then when could it hit 65,000 and what would be supporting factors?

The 65000 mark is just 8 percent away from us and there is a high probability that we can hit this mark by the end of FY22. I am expecting a meaningful correction in October but a strong bounce-back can be seen thereafter. Earning momentum will remain a key factor to drive this rally whereas India may continue to outperform in terms of FIIs' inflow.

Given the more than 135 percent rally in the Sensex and Nifty from March 2020 lows, is there any risk of a major correction of 10-20 percent or more before the beginning of the next major upmove? What could be those risk factors that can bring correction in the market?

Yes, I believe the short-term and meaningful correction is around the corner that could be between 5-15 percent but that will be a great buying opportunity. Global factors may trigger correction where rising US bond yields after the Fed declares the timeline of tapering cause near-term volatility.

Rising crude oil prices is also a negative factor for India. Furthermore, we have outperformed global peers with big margins where some mean reversion can be seen. China's Evergrande issue has cooled off for the time being but there is still lots of uncertainty about the slowdown in China.

After the Evergrande-led correction, the market seems to have gained more power that lifted the benchmark indices to new highs. Do you think it is an expensive market? Can you explain the parameters that say the market is expensive?

The market is climbing all walls of worry and surprising most of the people on the street by its ferocious move. If someone looks at the normal P/E (price-to-earnings) ratio where Nifty is trading at 27PE and market cap to GDP ratio that is above 125 percent then the market looks very expensive but we should know that FY21 was exceptional where earnings were not normalized.

The market is betting on strong earnings recovery which we are seeing in the last three quarters and the market believes that the strong growth momentum is likely to continue for the next 2-3 years due to multiple tailwinds.

The market is likely to remain expensive and may continue to rally however time will come when most of the positive things will already remain discounted and there will be extreme optimism and that will be time for the end of this bull market. But I believe we are very far from that situation at least 2-3 years. However, 10-20 percent intermediate correction can't be ruled out.

Given the market at record high levels with the Nifty50 moving towards the 18,000 mark and BSE Sensex nears 60,000 levels. What strategy should one should follow?

As I said we are in a classical bull market and it may continue for the next 2-3 years. Therefore investors should remain invested. However I am expecting a meaningful correction in the October series as we are near the psychological hurdle of 18,000 and 60,000 for Nifty and Sensex respectively, and the market is overstretched after a vertical move.

The weakness will be imported from global markets as charts of most global indices are likely to form a bearish pattern. Short-term traders can take profit from the table where any 5-10 percent dip will be a buying opportunity while SIP is the best way to ride the current bull run without worrying about volatility.

What are the pockets that one can look for investment right now and the same could give hefty returns in coming years?

Since the beginning of 2021, I am having a very bullish view on the Real estate, capital goods, and Infrastructure sectors. And I believe it is just the beginning of a bull run in these spaces where money can be multiplied many times in the next 2-3 years. The leader of the bull run in the Indian market is the IT sector and I believe the bullish momentum may continue despite a big rally because there are structural changes that are leading to serious rerating of this sector.

The realty sector rallied more than 31 percent in the last one month. What are key reasons for rally? Do you thing one should be cautious now or one can still invest at current levels? Is it a multibagger story?

We have a very bullish view on the Indian real estate sector for the next 3-4 years and the market is also taking cognizance of the turnaround in the Indian realty sector where the Nifty Realty index gained more than 21 percent last week despite negative news are coming from the Chinese real estate market. The Indian real estate market didn't perform for the last five years but it is showing a strong recovery in 2021 where the sector is bottoming out in terms of both volumes and prices.

The bounceback in the real estate sector can be attributed to low interest rates, supportive government policies, consolidation in the industry due to RERA (Real Estate Regulatory Authority) and demand from the first home buyer as there is strong wage growth in the technology sector.

Technically, the Nifty Realty index is coming out of 10 years of consolidation that may lead to a big bull run in the next 2-3 years. Investors can enter at current levels despite a big rally in the month of September while any small correction will be a good buying opportunity.

Disclaimer: 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.
Sunil Shankar Matkar
first published: Sep 27, 2021 01:24 pm

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