The Nifty likely to consolidate in the range of 10,850-11,200 for the coming week. Auto, Real Estate and NBFC can outperform the index
Calling the bottom or top for any market is difficult and risky. Investors must avoid aggressive buying especially in largecaps at this time and look for quality Midcaps for the long term, Romesh Tiwari, Head of Research, CapitalAim, said in an interview with Moneycontrol’s Kshitij Anand.
Q) It was an eventful week for Indian markets. The S&P BSE Sensex is back above 37,000, while the Nifty50 reclaimed 11,100. How are markets likely to pan out in the coming week, which is a truncated one?
A) We have seen a good bounce back from the sub 11,000 levels on the back of news from the government considering relief for foreign portfolio investors (FPIs) and the auto sector, as well as a rate cut from the Reserve Bank of India and a pick up in monsoon.
For the coming week, the Nifty will have to cross the resistance placed around its 200-days exponential moving average (EMA) at 11,250 levels to continue this upward momentum.
On the downside, support will be around this week’s low of 10,855. In the absence of any major news from global markets, this will be the range for the Nifty, 10,850-11,200, to consolidate for the coming week. Auto, Real Estate and NBFC can outperform the Nifty.
Q) Many news reports are circulating which suggest that the government might be looking at removing the tax surcharge on FPIs, and the FM is taking stock of the slowdown in India Inc., and possible recapitalization of PSU banks from September. Could these or any one of these triggers a relief rally in Indian markets?
A) I think we have already seen the bounce back from the recent lows in this week, but its continuation and sustainability after the next couple of sessions are doubtful.
The recapitalization of PSU banks and stimulus for the auto sector will help respective sectors/stocks to trade positively for a brief period, but not enough to decisively change the broader market's sentiments.
The more important factors for a sustainable up move are the revival of demand in the domestic economy and a rise in manufacturing activity in the coming festival season in India.
Q) What is your call in the rupee amid rising fears of currency wars?
A) Amid the uncertainties triggered by the currency war between US-China and the sell-off by FPI’s in Indian markets, the rupee is expected to trade weaker.
Rate cuts by RBI, and a pause in FPIs selling may provide some support to the rupee for now, but it will remain weak and susceptible to the escalation of global tensions.
Q) Morgan Stanley highlighted in its report that a bottom is in place for markets. What are your views and what would be your strategy?
A) It is too early to call a bottom for the markets as the valuations of quality stocks still higher given the blurry outlook on earnings for the next quarter.
Calling a bottom or top for any market is difficult and risky, so I prefer focusing on the fundamentals of sectors and then stock to buy in a phased manner for the long term.
Investors must avoid aggressive buying, especially in largecaps at this time, and look for quality Midcaps for long term.
I think that Auto and Pharma sectors are now starting to look attractive for the long term, and I will recommend buying in small quantities on dips.
The real estate and infra sectors may see some more downside before becoming a value bet for the long term. Big banks like ICICI, HDFC Bank and Axis Bank and SBI are well in place if the market reverses from here.
Q) Are there any stocks which could benefit the most from revocation of Article 370 from J&K?
A) This decision will not affect stocks apart from some rumors about center taking over J&K Bank.
The region will certainly get higher allocation for infrastructure and the industry that may procure more orders/projects for stocks like L&T and NHPC.
Q) Credit risk funds recorded outflows of Rs 2,695 crore in June, according to data released by the AMFI, while equity funds saw inflows of Rs 8,092 crore in July, up 6.7 percent month-on-month. Do you think the spillover effect equity funds in the near future as well?
A) Given the uncertainty prevailing in the overall economic scenario, we cannot base our predictions on this data. Valuations of quality stocks in equity markets are still quoting at the higher range even after the current fall.
I think the outflows from Credit risk funds may peak out now between August to September, but inflows in equity funds may remain subdued for this quarter.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.