Umesh Mehta of Samco Group, who has over 20 years of experience in the capital market, is of the view that investors should stick to high quality small and midcaps that can withstand any corrections going forward.
Mehta, who heads the research at SAMCO Group, said that now would be a good time to exit the retail-driven, low-quality stocks.
Here are edited excerpts from an interview with Moneycontrol’s Kshitij Anand:
Q) A volatile week for Indian markets but bulls managed to bounce back in the holiday-shortened week. What led to the price action?
A) The week started with a sharp correction as the benchmark indices tumbled by over 3 percent on Monday. This was a result of the news of a new strain of COVID-19 found in the UK which spread panic across the globe.
At first, it was assumed to be the beginning of a much-needed correction but markets managed to surprise by recovering and continued its upward journey.
However, the brief fall failed to deter the FPIs who continued their stance on Indian equities and remained net buyers during the week, thanks to low-interest rates and surplus global liquidity.
Q) We will be entering the last week for the year 2020 – what are the important levels which one should watch out for?
A) The sharp sell-off on Monday has established short-term support at 13,130 and on the higher side, the index is likely to be capped in the range of 13,750-13,800 as the market is still overbought in the short-term.
The Monday sell-off was actually a sign of bulls getting exhausted which can give way to minor corrections. A breakdown below the 13100 will confirm the short-term weakness.
Q) Do you think FII momentum will slow down as head into the New Year?
A) As we head into the New Year, the aggression of the FII inflows could slow down given the $900Bn stimulus announced by the US is mostly factored in now.
The direct payment of $600 to the American household can surely add to enhanced spending but the additional stimulus doesn’t stand to create much momentum as the quantum of the benefit has already been priced in.
To add to it, as the new margin norms by SEBI have recently kicked in, domestic volumes to seem to be drying up. Therefore, markets could remain volatile and range-bound as we head into the new year.
Q) Mrs Bector listed at an attractive premium – do you think it will also see profit booking in the coming week as we saw in Burger King?
A) As a rule such a first listing day massive price increase indicates that the bull market is nearing hysteria, however since the issue size was small, any such inferences may not hold good but one needs to be mindful of such continued madness in the primary market.
Q) The small & midcap indices also closed with losses. We have also seen some underperformance in the week gone by which could be partly due to profit-taking. What are your views?
A) Small and midcap indices may have witnessed some profit booking in the week gone by, but for the longer term, we expect them to do well. Investors should stick to high quality small and midcaps that can withstand any corrections going forward.
Now would be a good time to exit the retail-driven, low-quality stocks. Buy on correction in a bull market would be a good approach to increase mid and small-cap quality counters while exiting expensive low-quality stocks at highs.
Q) Any top 3-5 trading ideas for the next 3-4 weeks?
A) In the coming week, markets may witness heightened volatility and drying up of liquidity as the new margin norms have become operational. In general, investors are advised to stay put and refrain from aggressive buying in the short term.
However, they should keep a vigilant eye on private sector banks which are currently consolidating and can be accumulated on any minor correction. Selective auto and cement stocks can also be added to an investor’s portfolio.
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.
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