Being inherently forward-looking, the market is possibly factoring in events six-nine months ahead, when the economic activity is expected to normalise, and this is what led to the bulls taking charge of D-Street in the week gone by, Umesh Mehta, Head of Research, Samco Group, said in an interview to Moneycontrol’s Kshitij Anand. Edited excerpts:
Q) The bulls remained in control of D-Street in the week gone by. What led to the rally?
A) Last week started on a muted note for the Indian market with major indices witnessing pressure and some profit-booking, however, an upbeat global sentiment magnetised domestic bourses for a bounce back.
Given that global markets are nearing their 2020 highs, Indian bourses, too, are trying to imitate this trend. Mr Market being inherently forward-looking is possibly discounting events six-nine months ahead of time when economic activities are expected to normalise, this has ceremoniously given bulls charge of D-Street this week.
Q) Sectorally, metal and consumer durables hogged the limelight in the previous week. What is driving the rally in these sectors?
A) Metals are trying to catch up with the rally which is currently being witnessed in gold and silver. The seemingly superfluous liquidity present across the world is now being channelised into the commodity space, especially metals and this has brought back the lustre in the metal space.
Given that India is looking to jump-start the economy by unlocking different jurisdictions in a phased manner, buoyancy has shifted to the consumer-durable space with an increased focus on the automobile sector.
Q) Any particular data point that investors should watch out for in the coming week? Which are the important Nifty levels to track?
A) Investors should watch out for the US’ second stimulus package to fight the distressed economy amid this pandemic. The move is expected to lift the overall sentiment of the US market and, in turn, markets across the globe.
Accordingly, domestic markets are likely to mimic stimulus clues and sentiments are likely to be positive. Markets are likely to consolidate and move higher.
Investors are, therefore, advised to maintain a cautiously bullish outlook for the time being in the near term unless the Nifty50 breaks below 10,850.
As the rally in heavyweights has taken a pause amid weakness in banking majors, consolidation is possible before the next upmove. Traders are advised to follow a buy on dips strategy, with 10,850 as a strict stop loss.
Q) India has crossed 20 lakh COVID cases, gold is above Rs 56,000 and the Nifty back above 11,200. How do investors make sense of this puzzle?
A) Currently, markets are gazing beyond the rise in COVID-19 cases and are looking to factor in the revival of the economy post normalisation in the next six-nine months.
This has led to a fourfold positive sentiment. Additionally, qualified institutional placements of financial biggies roughly indicate gargantuan amounts of liquidity waiting in the system and this has the strength to push markets higher.
With the cost of credit low and precious metals souring, the positivity is leading to higher highs in the bourses. Mid and smallcaps, too, are chasing this very rally. Therefore, investors are advised to ride the rally so long as it continues.
Q) Small and midcaps continued 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) Historically, it is seen that small and midcaps tend to outperform when the overall market is in an uptrend and grossly underperform when markets are heading southwards.
The benchmark indices have inched up nearly 50 percent from their March 2020 lows, which gives small and midcaps a reason to follow suit.
Further, the quantum of helicopter money floating across the world, including in India, has ignited positive momentum across the board. Small and midcap stocks were already quite beaten down before the pandemic, the new-found momentum is causing rerating in stock prices.
Q) Which sectors are you bullish on and why?
A) We remain bullish on the pharmaceutical sector as R&D and drug trials continue in full force. The pandemic has led to great demand for a variety of drugs and has also quickened the pace for USFDA approvals.
With pressure on generics slowly easing and turnaround in the pharma cycle, the rally has little more potential going forward. Q1 FY21 numbers were just a glimpse into the pharma’s rosy growth and if the demand continues at a faster pace, margins of companies are sure to improve even further.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.