Next week, we may see increased volatility and profit-booking ahead of US elections and Nifty could retest the channel support which is now placed at 11,350, Umesh Mehta, Head of Research, Samco Group, said in an interview with Moneycontrol’s Kshitij Anand.
Q) It was a stellar month for D-Street, both Sensex and Nifty closed with gains of about 4 percent, while the broader markets underperformed. What led to the price action on D-Street?
A) The Nifty50 started the month of October on a very strong note on the back of an expected economic stimulus in the US and positive sentiment in the Asian markets, but it failed to sustain above levels of 12,000.
It tried to cross 12,000 three times but faced very strong resistance. Over the last few days, the index saw steep corrections on concerns over the second lockdown in France and Germany, weak global sentiment, and an increase in volatility around the US presidential elections.
There is also a certain amount of rotation in the largecap stocks category due to higher certainty in earnings over broader markets which have largely underperformed.
Q) Any important events to track in the coming week, and how will they impact Indian markets?
A) In the coming week, Indian bourses are expected to sentimentally mirror global trends especially the outcome of the US presidential candidacy.
On a macro level, the US will majorly guide Indian bourses, while on a micro level, earnings from India Inc and auto sales numbers will have a stock-specific impact.
October auto sales numbers will be especially important to track because they will reveal first-hand demand outlook at the start of the festive season.
Q) From a technical perspective, what is your outlook on markets and important levels to track in the coming week?
A) The Nifty50 index has been correcting for more than two weeks now and is trading just above the channel support visible on the weekly chart.
In the coming week, we may see increased volatility and profit-booking ahead of US elections and Nifty could retest the channel support which is now placed at 11,350. On the higher side, the market may remain capped at resistance levels of 11,750.
Q) Based on the October series expiry what is your expectations from the November series? Do you see Nifty50 reclaiming 12,000-12,400 levels?
A) Looking at the intermediate-term trend, the Nifty50 index is trading in the overbought zone, which is why the market remained choppy and sideways since September. The Nifty is trading around channel support which is a crucial zone.
We maintain a bullish stance until Nifty does not break below the channel support. If it holds, it possibly can see the levels of 12,400 in the November series.
And, if it breaks down below, Nifty can slide up to the levels of 10,800. At the current point in time, how our Index reacts to channel support holds the answer.
Q) Small & midcaps underperformed in October. Do you think with the economy getting more stable, we could see some outperformance in November?
A) Small and midcaps are going through a period of consolidation and are likely to outperform the benchmark index in the third quarter.
Once the earnings start coming in and valuations become cheap, broader market stocks are likely to rally. But, with the COVID-19 led uncertainty, investors are advised to remain cautiously optimistic.
Q) Any 3-5 short term trading ideas for the next 3-4 weeks?
A) Private sector banks seem to be better poised to ride the next leg of the rally given that they have managed to trim their deposit rates at a much faster pace than their lending rates when compared to PSU peers.
On the other hand, Pharma stocks have been consolidating over the past 3 months and may now be ready for a fresh rally.
Investors should keep their shopping list ready for Diwali and should initiate buy on dips in frontline quality stocks.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.