Correction risks increase as Nifty inches towards 9100: JM Fin

Outlining his sectoral picks, he said that auto stocks will continue to get expensive and a lot of upside is still left for auto companies.

He sees the BSE auto index to rise another 2000-3000 points.

The cement companies still have a lot of value and one can expect another 50 percent returns in select cement stocks, he added.Below is the verbatim transcript of Gautam Shah and Ashwani Gujral's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18. Sonia: You have been really optimistic about the markets and it has played through entirely the way you have projected. Now the Nifty is virtually at that 9,000 mark. Just 200 points shy of that. Do you think it is just a matter of time before we get there? Shah: Yes, it has been a pretty phenomenal run at the markets. In fact, the run has been so large that a lot of market participants are finding it very difficult to digest such levels. However, when you hold a bull market in captivity for 4-5 weeks, you generally get the kind of snapout that we saw this week. This is very typical of a bull market and I must add here that this is the strongest form of bull market that has played out in the last six months because markets have made higher tops and higher bottoms, no doubt about that. But as the Nifty has moved from 6,800 to 8,800, clearly not seeing any major correction. What you are really seeing is pauses and markets moving higher and this is really as I said, the best form of a bull market. However, let me point out here that the evidence right now on the charts is not as strong as it was a couple of months back. This is not an 8,000 market, this is a market which is close to 9,000 and having run up so sharply, the risks of a correction has really increased in the last 7-10 trading sessions. So, yes, I would be optimistic and I do believe in my year-end target of 9,100 and I think we will get there gradually. But the point which I am trying to make is that the bulls will be made to work really hard from this level of 8,800 to get to that 9,100 mark. So, the move is going to be much measured, it is going to be more hard work, but at the same time, as the markets consolidate at regular intervals, they seem to have created a lot of supports on the downside. So, just for the near-term, 8,680 becomes an important level to monitor and market participants and your viewers can use it as a trading stop loss. And below that 8,500 is now the newer base. So, that is something that investors can watch. And only if that level is violated would you be concerned about this run up. But all-in-all it is a great set up that we have, but do keep a provision for a 2-3 percent for a give back that could happen at any point of time given the kind of elevated levels we are trading at right now. Anuj: That is the big problem for this market, all through the year if you have waited for correction, the market hasn’t obliged and moved on; it had just given you maybe one or two consolidations or corrections. However, you are saying that 8,600 is possible in this run if this resistance mark holds out. In that case what is the best strategy, would you suggest chasing rallies as well if this hypothesis does not play out which is that the market does not give you that correction and straight away next week maybe makes a move towards 9,000, in that case would you chase momentum as well apart from buying the dips? Shah: I think today’s data from the US is going to be important and that is really going to decide whether we can actually head towards lifetime highs or not. However, before we actually get there, I think 8,850 on the Nifty is an important resistance and I think this is a level which will be very difficult for the market to cross from a near-term perspective. In fact a lot of buying will be required for the market to take out 8,850 and if this level gets taken out, I think that will open the gates for the Nifty to move to 9,100. Let me also point out here that in bull markets you don’t wait for corrections, I think that has really been our stand since that move from 7,200 started off. However, as we get closer to 9,000, all those people who have been stuck with some positions or the other in 2015, will look for an opportunity to sell out and that is the reason I feel that 9,000 being such a important psychological level will lead to some selling pressure and that is the reason I think the move is going to be a little measured. The point is, you don’t go all out buying into the market at these levels, I am sure you will get opportunity at lower levels and a 100-200 point dip I think is very normal, it is just a 2-3 percent fall if it happens and it doesn’t change the framework of the uptrend in anyway. So, you back the winners, you back the sectors that are doing well, that are leading this market higher and as and when resistance levels get taken out, you add on to your positions. Sonia: I must congratulate you because you were the first one to alert us that the next phase of the rally will be led by the auto space and that is pretty much what has played out. Look at these stocks, 52 week highs, lifetime highs for names like Tata Motors, Maruti Suzuki, Hero MotoCorp. Is there still more value you see here on the charts? Shah: Absolutely, this bull market is being led by the autos and fundamentally while you might not be able to justify it or even technically you might feel that the price is too high, I think a lot of these stocks can just keep making newer highs and they will just keep getting expensive, something that happened with some of the other sectors in the 2003, 2007 run. So, yes, the auto index even at levels of 22,000 which is the BSE Auto Index, I think looks good for another 2,000-3,000 points over the next three to three and a half months. I think some of these auto stocks in the F&O space, the popular ones, probably have the best setup even at these levels. So, if you want to buy something to hide in case there is a small correction, I think autos are the ones which will not fall so much but the upside potential is also pretty large. So, yes, autos followed by the banks are two of our favourite picks in the market as we go ahead. Anuj: One big problem for the market has been IT and Infosys in particular closer to 52 week lows, while the market is at 52 week highs. Do you see this remaining a bit of laggard or maybe even a shorting candidate? Shah: No, I think you don’t want to concentrate on shorts in a bull market, you want to concentrate on what to buy, but I think IT has an index has been stuck in a 1,000 point band, 10,500 on the downside, 11,500 on the upside and this might just continue for a while. I am sure there will be some bounces from time to time that will give you the feeling that now the index will make a comeback, but in a bull market, the biggest cost is opportunity cost and if you really had your money in IT and healthcare, you really would not have participated in the last 4-5 months. I think this is a sector best avoided right now, you still do not have clarity that it’s going to snap out of this range. In fact, when I look at the charts of some of this large cap IT stocks, I get the feeling that there could potentially be another 5-7 percent downside if at all the market were to see any giveback in the next 2-3 weeks, because of any local or global factor, it is the healthcare and IT space that will be hit the most. It just makes sense to ignore them for the time being and once we see some momentum beyond 11,500 that is a time wherein we would look at the sector again. Sonia: Tell us about the stocks that you would think could make you a lot of money from here on, say over the next 6-12 months, what tops your list now? Shah: Well, compliance does not allow me to give you specific names and you are at index of 8,800, so you want to be very careful recommending stocks in sectors to your viewers, but having said that I think one space which I think still has a lot of juice and if you are looking at it from a 6-12 months perspective, I think that would be cement. If you look at some of the midcap cement stocks, the kind of setup that they have developed in the last 6-8 months is phenomenal. A lot of cement stocks are making higher highs on a weekly basis and this is likely to continue for months to come. This is one space where investors can look at and I wouldn’t be surprised if this sector gives you at least 50-70 percent over the next 6-12 months, which I am sure is going to be gross outperformance in comparison to the other sectors. This is something which I would like to share right now. Anuj: What about couple of other sectors like tyres, if you did take a look at some of the stock moves? Anything in that space? Shah: Will not specifically, because these are names which you look at on a week to week basis. You might not have it on your buy list consistently, but one point which I would like to make here is the midcap index. The midcap index is up 35 percent since the lows that we saw in the month of February and March and that’s a big move and while this move has taken place. You have not seen even a single 5 percent correction, so that’s tells you how smooth the move for midcap index has been and if you were into quality stocks, you would have made serious money and this where we keep telling your viewers and to our clients that investing through a midcap mutual fund in a bull market I think is the best thing that they can do, because they don’t need to watch the screen and if you are into the quality stocks, they will give you super normal returns and I do believe that while the midcap index is slightly overheated here, any small decline of 3-4 percent, which I think is possible over the next 4-6 weeks will be an opportunity to get into them, because a lot of stocks are breaking out on a regular basis, so you want to try to catch them through a mutual fund route. Sonia: You do have a strategy on L&T I understand. Take us through that and is that what just a positional trade, is that a slightly more longer term trade? Shah: Well, we like capital goods. I think capital goods as a sector has been sort of an underperformer in the last 4-6 weeks and now as the Nifty has snapped out of this range, I think some of the popular capital goods stocks including the name that you mentioned are likely to see a 5-7 percent run up, so this is a move that we expect to play out in the next 2-3 weeks and the downside is limited, because as I said like the market many of these stocks have made a nice strong base just 2-3 percent away from current prices. Yes, we like it from a trading angle. Anuj: So 8,809 now on the index. Do you see more gains going forward, you target has been of course the all time high, but do you see some bit of consolidation before that or do you see this now happening in a hurry? Gujral: The way this range expansion has started, you had couple of good days and then last two days has been sideways. The market breath has really collapsed, so market is narrowing as we move forward and that is a point that probably Gautam was also making. So next 150 points can happen on a very narrow market, so all stocks may not participate. This needs to be taken on board while you trade on the long side, but I believe probably banks and autos and one good day probably in the US market will take you very close to 9,000. Sonia: What about individual stocks, what are your top stock calls for next week? Gujral: See a lot of stocks are now bottoming and probably I like to give medium calls on the show, so Amara Raja Batteries, auto ancillaries has done very well. It is coming out of a long consolidation. A target here next 3-6 month type of target could be closer to Rs 1,250. Also Engineers India is coming out of a fairly long bear market. Over a period of time 3-6 months again probably Rs 350 would be good target here and NBCC had large upside and then it went flat around Rs 235-240 that is now pushing on the upside, so maybe targets of Rs 320 should be possible even on NBCC. Anuj: Two index stocks and how would you approach them, both of course completely opposite to each other in terms of their trading patterns, Tata Motors and Infosys? Gujral: Tata Motors has been clearly moving forward. The day of the Brexit was a clear indication that Tata Motors will be moving higher. I think Rs 600-620 should be a decent target out there. Infosys continues to move lower. It had a small pullback rally that consolidation is again probably trying to break on the downside. So, probably a target of Rs 950 is possible on Infosys. I just have a point to make that NASDAQ is making fresh all time highs and our tech sector is going down. What happens if NASDAQ starts to correct? Probably our tech sector will outperform on the downside even more. So, that people should keep in mind that there is still more downside on Indian IT. Sonia: Our previous speaker Gautam Shah was telling us that there is perhaps lot more value left in the cement space. What would your thoughts be on that and any top cement stocks that you would be recommending from the frontliners? Gujral: Cement is probably started a multi-year bull market this March and a lot of stocks have come out of large bases. So, in the midcap, Dalmia Bharat, JK Cement, even Prism Cement will get to levels which we can’t think of today. So, it is entirely a sector move, so, everything that has cement attached to it is likely to do very well. Shree Cement probably will get to Rs 20,000. So, all kind of cement stocks are going to have fairly serious bull market from here.