In midst of 'raging bull run', Nifty target of 9,100: JM Fin

Below is the verbatim transcript of Gautam Shah’s interview with Latha Venkatesh and Sonia Shenoy.

Latha: You were keeping the faith in the markets even at that 7,000 level saying that this is an 8,300 market. I remember you saying that number, probably about a couple of months back. Now that 8,300 is here, where do we go?

A: I think there is no doubt in my mind that we are in the middle of a raging bull market and I think there is a lot of evidence on the charts that suggest that this is going to continue for a while. The technical factors are all there and I just want to list out a couple of them. If you really go by the fundamentals of technical analysis which is really Dow Theory, what we have noticed is that the market has started that sequence of higher tops and higher bottoms and I referred to this in my last interaction as well.

However, when you have a sequence of higher tops and higher bottoms, it is prudent to buy all dips. If you look at the moving averages, they are all nicely stacked up below the price action, so that is something which is very good to see on the charts. Some of the pattern breakouts that we have seen in the last couple of weeks are explosive. These are the kind of breakouts that we have not seen for years and they look very reliable on the charts. So, these breakouts give us targets which are far away from where we are right now and to top it all, if you really look at the price action, the market is finding it difficult to correct even 50-100 points after having run up 600 points, 7,700 to about 8,300.

So, corrections have been very shallow which is very typical of a strong uptrend and if you really put all of this together, it does suggest as if this uptrend is going to continue and while 8,300 is a minor resistance and you could see some consolidation around it and we saw it in the last few days, eventually, when I say eventually, in the next 1-2 weeks, you could see the Nifty take out 8,300-8,350 and then head towards that target of 8,650-8,700 which we had set ourselves for the end of this year.

But the way the going has been, we are actually upping our targets and we believe that by the end of this year, we should be at at least 9,100 on the Nifty. Bull markets actually do not have targets, but these are just numbers which investors can work with.

Let me also point out here the action in foreign institutional investor (FII) and non-FII space. I gave you the technical factors. If you look at the FII action in the derivative space, what you will notice is that the FIIs are 6:1 long shot. This is something that we have not seen in a long time and it actually tells you how kicked they are about the Indian markets and on the other hand, the non-FIIs, the local market participants, unfortunately have been on the short side while this entire rally has played out. This has to change because both these market participants are stubborn; one on the buy side, one on the sell side, but the price action suggests that the stronger hands are going to win this battle going forward.

So, every small decline of 100-200 points maybe towards 8,100-8,000 should be used as a buying opportunity, because even at levels of 8,200-8,300 the risk reward is excellent to go out and buy whether it is trading or investment.

Sonia: Tell us about the Bank Nifty because that one is doing very well at almost 18,000. Do you think that this journey towards your target of 9,100 will be led primarily by the banking stocks?

A: Bank Nifty has been a rock star performer in the market in the last couple of months and this in an environment when public sector undertaking (PSU) banks have not performed. So, it is phenomenal, it actually moved behaved or moved like a midcap to have a largecap index, move from 13,500 to 18,000 is such a short span of time, that is commendable and it tells you that if you are in the right sectors, the market will give you super normal returns. Just like the Nifty 8,300 is a bit of a resistance, 18,000 on the Bank Nifty is a little bit of a problem level, so you could see some consolidation around this point.

But the silver lining is that the PSU banking stocks have only started to move now. If you look at the last 7-10 days, some of the laggards in the PSU banking space have started to do well and I have seen really nice basing patterns out there. So, I do believe that the PSU bank index itself can give you 20 percent and if that happens, the Bank Nifty will take out 18,000 eventually. The near-term target which we are working with is about 18,700 on the Bank Nifty, but if you want me to give you a target corresponding to 9,100 on the Nifty, it would be about 20,500 on the Bank Nifty. So, I do see another 10-12 percent upside at least for this index and with the Bank Nifty weekly options starting off, it has really a more fascinating and a more volatile product.

Latha: Will you bet on the PSU banks as well or just stick to the retail private sector banks?

A: I have said this in the past that if you have to do a buy and hold and create a portfolio, it has to be the private banks, because they are the ones that are moving very cleanly and the moves have been a phenomenal and even in the bad times, some of these private banks have really stood ground. Names like Yes Bank and IndusInd Bank are trading at lifetime highs and some of the other banks are also likely to follow suit. So, if you have to take a trading call, for the next four-six weeks, looking for 10-15 percent in quick time, maybe then you can look at the PSU names simply because the damage there has been so much in the last one year that there is a lot of scope for recovery. So, that is the only reason from a trading perspective I would recommend PSU banks, but buy and hold, six months view, you still have to go with the private names.Sonia: I remember you telling us clearly that the Standard and Poor (S&P) 500 chart is looking extremely bullish. It has surpassed that 2,100 mark now. What is the sense you are getting? Is there more to go or is there some consolidation there as well?

A: I do believe that something special is going to happen in the US markets. These days, you have one or two dull days in the Indian markets and everybody feel a little board. If you actually look at the charts of the Dow and the S&P 500, they have been in a range for almost two years. They have not made higher highs; they have not made lower lows. So, it has been a very tricky scenario for US market participants.

However, we have noticed in the last two weeks that there are many triggers which are suggesting that this summer of 2016 for the US market is going to be very special; in fact you could see the US market hitting new lifetime highs. I see the S&P 500 crossing 2,150; I see the Dow crossing about 18,000 and that could potentially lead to a quick 10 percent move because this frustration of two years which has been there in the US market will get taken out once lifetime high levels are crossed. And obviously, everybody is alluding to the events that are lined up later in June and there is already so much in built caution because of those events but the charts are suggesting that those events might just be in favour of the markets - that is the way we do our analysis, and therefore, one should be positioned for the same.

Latha: If the index is going to 9,100, which will be the best winning horses? I am not asking you for levels on stocks, but do talk stocks just to say which will be the horses that will take it top 9,100.

A: Sorry, but compliance does not allow me to give you specific names. I will talk about sectors. Private Banks, as I said if you are bullish on India, if you are bullish on the Nifty, you have to have a significant holding in the Bank Nifty and in the private banks. But aside from that, two other sectors where we are very positive would be auto and metals.

I would like to spend a minute on the metals index. If you look at the last two years, the BSE metals index was trading at 14,000. From that level, in the 2015 decline, it came down all the way to 6,000 which is a 60 percent drop and this was probably one of the worst performers in the market and after this 60 percent drop, you have seen six months of consolidation for the metals index and thereafter this breakout which has taken place in the last three-four weeks and this breakout tells us that the metals index could possibly be one of the best performers.

Fundamentally, there might not be an argument right now because people are still waiting for data, but technically, there is enough indication that from the current levels the metals index could easily give you about 25 percent and look at the way some of the popular metals stocks have behaved – JSW Steel, Tata Steel, Hindalco Industries, phenomenal moves there and I do believe that this is just the beginning. So, if you have to ride the Nifty, you have to ride metals and you also have to ride autos.