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Last Updated : Aug 08, 2020 12:32 PM IST | Source: Moneycontrol.com

DAILY VOICE: Mid & smallcaps playing catch-up with largecaps: Sacchitanand Uttekar

If we dissect the move to detail then the journey from 10840 till now, it has been the most volatile due to high frequency of sector rotations, and leadership rotations within the index constituents.

 
 
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Mid and smallcaps are catching up with largecaps and investors are looking for stocks which have underperformed as they are reluctant to chase stocks at such steep valuations, Sacchitanand Uttekar – DVP – Technical (Equity), Tradebulls Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpt:

Close

Q) Bulls remained in control of D-Street in the week gone by. What led to the rally or the optimism?

A) The week ended 29th May 2020 was when the index closed above its 5-Weeks EMA for the first time post an intermediate corrective wave swing being established around 8806.

Since then it has been 10 weeks of advancement & the index is yet to register a close below its progressing 5-Weeks EMA level which is now around 10,990.

The ongoing rally is a part of the larger degree corrective move of its prior declining phase which commenced from 12430 towards 7511 with its internals placed perfectly in form of a zig-zag formation.

If we dissect the move to detail then the journey from 10840 till now, it has been the most volatile due to high frequency of sector rotations, and leadership rotations within the index constituents.

The recent optimism off late has been due to progress in the vaccine development, easing off in lockdown rules across vital states across India & some further hope on the debt moratorium related announcement during the MPC meet & RBI’s resolution framework committees judgement.

Q) Sectorally, pharma seems to be hogging the limelight along with IT. How should one play these themes? Because for pharma most of the stocks are already trading at fresh 52-week highs?

A) Nifty Pharma is witnessing yet another strong quarter as the month of July seems to have replicated the move to some degree as witnessed in April’20, as it helped the sector to surpass all its major hindrances placed around 10400-10800 zone in one go.

IT on the other hand has been confidently trending higher backed by domestic demand as well as a global rally in tech stocks. Both the sectors could provide some cushion in case of any uncertainties arising due to scare of another wave of the pandemic.

Dollar strengthening has been vital for both these sectors as despite most of their constituents quoting around their respective 52-week highs any declining opportunities should be utilised by investors to ramp up their exposures towards such defensives as the valuations across the street looks overstretched again.

Q) Any particular data point which investors should watch out in the coming week? And, which are the important levels to track on Nifty50?

A) Brent crudes volatility seems to be making a comeback post its 9 weeks of a tepid move as it gets ready to challenge its 200-Days EMA zone.


While the yellow metal GOLD has been hitting life highs reading even on its strength gauging indicators & deviating too far away from its averages which could be a warning sign.When it comes to Nifty 50 the key level would be 10880 as a breach only below the same would warrant into wreaking of the ongoing bull trend while upside could remain capped around 11377-11500 as indicated by the ongoing Broadening formation on its daily scale.

Q) India crosses Rs 20 lakh COVID cases, Gold above Rs 56000, Nifty back above 11200. How can investors make a sense of this sea-saw puzzle?

A) There is a sheer disconnect between the economy and capital markets. Despite increasing COVID cases, market off-late has been gaining because of huge liquidity injection by foreign investors, due to the easy accessibility of funds at a lower rate from the world’s central banks.

Now with increasing debt, the market is losing confidence in fiat currencies especially US Dollar and hedging their risk by investing in safe-haven assets like Gold which is why we are seeing such surge in gold prices.

Investors should only follow the trail of liquidity because until cheap liquidity is available, we will see such disaccord between the economy and markets. Any chance of liquidity getting dried up will result in a correction.

Q) Small & Midcaps continue with their outperformance in the week gone by. What is fuelling the rally in the broader market space – is it undervaluation, flush of money, or investors just chasing growth?

A) It would be the first two reasons for the above-listed question. Undervaluation and flush of money. Mid-cap and small cap are catching up with large caps and investors are looking for stocks which have underperformed as they are reluctant to chase stocks at such steep valuations.

Also, the recent upward revisions in the circuit filter changes seem to have added that extra pedigree for most of the quality midcaps.

We are yet to see any recovery in the economy after going through this pandemic so clearly investors are not eyeing any growth when buying small and mid-cap stocks. It’s just rising tide backed by liquidity that is lifting all boats scenario.

Q) Any 3-5 technical trading ideas which investors can execute for a period of 3-4 weeks?

A) Since the market is looking slightly stretched even on its overall valuation front we have been advising investors to ramp up their exposures into defensives like IT, Pharma & Non-durables as most of their constituents remain cash rich & less vulnerable towards any pandemic led uncertainties.

Within these pockets leaders like Dr. Reddys, ITC & TCS are relatively better placed for further performance in the coming 3-4 weeks.

Dr Reddy’s Laboratories:

Dr Reddy's has been sustaining well above its 2015 highs from where it had witnessed a major corrective wave. The breakout above 4380 has been with strong volumes while its intermediate wave count exhibits a target up to 5050

ITC:

ITC has been an underperforming its peers but its recent consolidative action of 10 weeks now looks mature for a breakout as indicated by its daily RSI reading. We expect a move above its 200-Days EMA zone placed around 210

TCS:

TCS has been trending well & the recent quarter could see a final sustained breakout above its quarterly resistance area around 2300.

The ongoing series of continuation pattern formations is expected to continue as the move unfolds towards 2450 in the short to near term

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

First Published on Aug 8, 2020 12:32 pm
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