COVID-19 second wave hit realty stocks, small & midcaps hard: Mehul Kothari of AnandRathi

With regards to the price action, there were no specific triggers but the worries over the rising COVID-19 cases in India along with the fears of lockdown 2.0 gripped the markets and that made things a bit precarious.

However, the benchmark indices maintained their bullish stance by not giving up the crucial supports.

The Nifty50 index sustained above the previous swing low of 14,264 on a daily closing basis and surged higher near the 14,700-mark proving a point that the bulls are here to stay.

Q. Small and midcaps also suffered slightly more than the benchmark indices. What is leading to the pressure on broader markets – is it a rise in inflation which could weigh on RBI, lockdown/curbs could slowdown economic activity, etc.?

A. Well, we have been quite vocal about the outperformance of midcap stocks for the past couple of months and they really did. So, in terms of correction, they always tend to outperform by correcting a bit more.

The primary reason being a fear of a lockdown as stated earlier for this corrective move. However, things are not still not scary as in March 2020 when it comes to the markets.

Q. Sectorally, realty (down nearly 6%) and IT (down 4.4%) were top losers for the week gone by. What is weighing in these two sectors?

A. With regards to realty, as mentioned earlier, the concerns regarding the second wave of COVID-19 cases have dampened sentiments as the sector was just looking forward to the nascent recovery. This has resulted in some more pressure on realty stock.

When it comes to IT, we had a view that 72 would be strong support for the USDINR, and then it could move higher. The USDINR then reached 75 and that is why the IT stocks did well off late.

However, as the result season has begun, we have witnessed some profit booking in stocks like TCS, Infosys, Wipro and many more, and that kept them under pressure.

All said and done, they are again gaining their ground and are all set for more upside from here on.

Q. Any important levels that traders should watch out for in the coming week on Nifty and NiftyBank?  

A. We need to reiterate our view that on a larger scale, we are highly bullish on the markets. If we look at other countries' data, the moment they peaked their second wave numbers, their indices rallied a lot.

We are expecting a similar kind of move in our markets. In case of any major negative triggers, we expect the zone of 13,500 to act as strong support for the coming few months.

On the upside, considering a breakout above 12,400 from the bottom of 7,500, we expect a target of around 16,500 – 17,000 for Nifty. This might happen gradually but that is where we see the index.

With regards to the Nifty Bank, if at all 30,000 is held on the downside then we could see 34,000 – 36,000 pretty soon in the index.

For the coming week, 14,200 – 14,900 would be the levels to watch out for Nifty whereas for Bank Nifty 30,000 – 34,000 would be a decisive range.

Q. Any top three-five stocks that are looking strong on the charts for the next three-four weeks?

A. Here is a list of stocks for the next three-four weeks:

Amara Raja Batteries: Buy | LTP: Rs 808 | Stop Loss: Rs 760 | Target: Rs 900 | Upside: 11%

In the month of January 2021, the stock was trading above 1,000-mark and is now hovering near 800-odd levels. The stock has now corrected by around 20 percent from the top and the stock is still in the long-term uptrend.

At this juncture, the stock is hovering near the potential reversal zone of a bullish harmonic pattern. In addition, it is at the support of a falling trend line on the daily chart.

The risk-to-reward ratio for going long is highly lucrative in this stock. Hence, traders are advised to buy the stock in the range of 810 - 800 with a stop loss of 760 for the upside potential target of 900 in the next three-five weeks.

Bata India: Buy | LTP: Rs 1,323 | Stop Loss: Rs 1,200 | Target: Rs 1,500 | Upside: 13%

The stock corrected from the top of over 1,600 to the recent bottom below the 1,300-mark. This has brought the stock under the oversold zone in the smaller time frame.

At this juncture, the stock is trading near the potential reversal zone of a couple of harmonic patterns called CYPHER and a SHARK.

For a medium-term trader, this could be a perfect price to go long with a time frame of one–three months. Thus, traders are advised to buy the stock in the range of 1,320-1,280 with a stop loss of 1,200 for the upside potential target of 1,500 in the next five–seven weeks.

Dr Reddy’s Laboratories: Buy | LTP: Rs 4,893 | Stop Loss: Rs 4,675 | Target: Rs 5,250 | Upside 7%

Since the past couple of weeks, the pharma index has been doing phenomenally well. Of this, the stock Dr Reddy’s has been a bit underperformer but is now gaining the limelight due to the production of the Russian Sputnik V vaccine.

The price pattern is very strong on the technical parameters and the stock could outperform once there is more clarification on the developments of the vaccine.

Traders are advised to buy the stock in the range of 4,900 - 4,850 with a stop loss of 4,675 for the upside potential target of 5,250 in the next five-seven weeks.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.