Mohit Nigam, Head - PMS at Hem Securities, believes that the November series will be rangebound as monthly option chain indicates strong support near 17,500.
“Recovery across the market could be seen from the support level, however, hitting new high seem tough for the market during the November series,” he says. “Overall, the markets are in up move for a longer term and due to this recent sell-off, there will be no impact on the primary market as the overall liquidity in the market has improved compared to the past and hence investors are expected to infuse more funds in the upcoming IPOs,” he says in an interview with Moneycontrol.
Excerpts from the interview:
Do you see any possibility of the Nifty breaching 17,000 in November series? Or, there will more corrections in the broader market than benchmarks?
The market saw significant correction on Thursday, not seen in over half-a year since April 2021. The possibility of Nifty50 breaking the 17,000 mark looks slim in the next expiry. The November series covers the season of Diwali, which might add some upward push to Nifty50. The broader markets have been underperforming the benchmarks as the investment is moving towards the bluechip, hence large-caps are seeing some buying action.
Do you think the Morgan Stanley downgrade is the trigger for this sell-off? And, how about the likely impact of the Federal Reserve policy meeting?
I don’t think the Morgan Stanley downgrade or Federal Reserve policy decision would impact the market over the next three-six months, though a small impact could be seen in the near term, after the correction shown in Thursday’s expiry on October 28. Rebalancing of portfolio and shifting to safe heavens of large-caps are the expected market movements, I believe.
Do you think it’s time to be more cautious and book whatever profit earned so far?
In the last week, few brokerages suggested their clients to consider a higher exposure to other Asian markets, which have hugely underperformed India this year due to which we are witnessing selling by domestic and foreign institutional investors. The broader markets underperformed the frontline indices which is emphasising pain in the market. We feel that the current correction can be considered healthy and a chance for investor to re-enter the market. As the near term outlook remains uncertain, the investor should trade cautiously and focus more on quality large-caps scrips.
What is your reading from the September quarter earnings? Which stocks would you recommend now?
Out of all the listed companies, 553 companies have released their September quarter earnings so far. Overall sales in the Indian market increased 12.14 percent over the last quarter and post-tax profit increased 15.07 percent in the same period.
Specifically, IT sector announced good results with strong deal momentum and aggressive hiring seen in this quarter, majorly led by robust demand environment, but at the same time, it is also facing supply-side challenges and their attrition rate is inching upwards.
The banking sector also gave good number as growth is seen in advances. Asset quality, too, improved during this quarter with decline in gross NPA. Manufacturing is facing pressure on its operating margins due to a rise in commodity prices.
Small-cap companies gave maximum sales growth of 17.26 percent quarter-on-quarter compared to large-cap and mid-cap companies. We believe that chemical, electric vehicle (EV), new-age IT sector companies in the mid and small cap space will continue to outperform their large-cap peers. Our top picks from these sectors include Mindtree, MTAR Technologies, Sona BLW, Deepak Fertilisers and Indian Energy Exchange.
We are still positive on the September quarter results and believe that any significant dip is a good opportunity to accumulate quality stocks.
What is your reading on F&O expiry and rollover data and what is the indication from the same about market trend in November series?
The Nifty50 rollover for the November series stood at 73 percent, as per the provisional data. Fewer rollovers indicate uncertain near-term market outlook. The fear stems from high valuations and RBI's plan to curtail liquidity. Adding to the fear, FIIs had been net sellers during the month to the tune of Rs 3,819 crore, whereas DIIs were net buyers for Rs 837 crore only.
The November series is expected to be rangebound as monthly option chain indicates strong support near 17,500. Recovery across the market could be seen from the support level, however, hitting new high seems tough for the market during the November series.
What is your top pick from the five IPOs lined up before Diwali?
Amongst the pre-Diwali IPOs, Nykaa and Policybazaar are our top picks, given the fact that they are first-of-their-kind listings in the e-commerce space. Nykaa has a leadership position and a strong brand image. The company, which turned profitable in FY21, has a huge potential to tap the underpenetrated beauty and personal care segment. Investors should, however, remain cautious while investing, given its higher valuation as it has a long way to go before it proves itself.
Policybazaar, with a 93.4 percent market share in FY20, is the largest online insurance and credit marketplace. With no listed peer in India, it is expected to benefit from the increasing insurance penetration in the country. However, investors should focus on the future prospects of the company considering the fact that it is yet to report profit apart from the aggressive pricing of the IPO.
If the correction continues for some more days, do you think the primary market will also get impacted and companies would delay their listings?
For the last 1.5 years, markets have been in the bull phase and have witnessed a vertical rise in a lot of companies. Typically, such rally is followed by minor corrections. That’s what is happening right now. Markets are making healthy corrections and are preparing for the next higher move.
Overall, the markets are in the up move for the longer term and due to this sell-off, there will be no impact on the primary market as overall liquidity of the market has improved as compared to the past and hence investors are expected to infuse more funds in the upcoming IPOs.
What are the sectors to watch out for in November?
Let’s take a look at the different sectors.
IT Sector: Information technology sees very strong demand as most of the businesses are getting digitised after the pandemic. We can see a strong deal momentum across business verticals and geographies for most of the IT companies. In the last 15-20 days, we have witnessed significant correction in IT companies and, based on our analysis, we believe investors should use this dip as a good opportunity to accumulate IT stocks. Our top picks in this sector include HCL Technologies, Mindtree and Persistent Systems.
EV Sector: Electrification is the biggest emerging trend in the automobile industry. According to a report by Ricardo, Battery Electric Vehicles (BEV) has been growing fastest at 46 percent between 2015 and 2020 and is expected to experience increased market penetration at a CAGR of 36 percent between 2020 and 2025. Our top picks in this sector include Sona BLW and Tata Motors.
Chemicals Sector: The Chinese economy is facing severe challenges such as shortage of power / electricity, which is forcing chemical companies to cut down their production. These challenges are offering huge opportunities to Indian companies. Our top picks from this sector include Deepak Nitrite and Balaji Amines.
Disclaimer: Stocks mentioned in above answers can be part of HEM Securities PMS Fund. Hem Securities Ltd, its Associates, PMS, their Directors, employees, and their relatives may from time to time, have long/short position and may buy or sell the securities of the above mentioned company(ies).
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