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Last Updated : May 26, 2019 08:23 AM IST | Source: Moneycontrol.com

Midcap and smallcap indices could give 10-15% return in pre-Budget rally

Considering uncertainty of trade war and weak domestic economic data, the upside would be capped to 3 to 4 percent in the near term for the Sensex and Nifty.

Kshitij Anand @kshanand

Liquidity driven rally can drive good quality midcaps-smallcap from the current levels. So, the real opportunity lies in accumulating good quality midcap and smallcap, Vinay Rajani, Technical Analyst, HDFC Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Q) It was a historic week for Indian markets. 40,000 on the Sensex and about 12000 on the Nifty. Can we say that we might have made an intermediate top at these levels?

A) No, the recent highs in benchmarks are likely to be taken out sooner than later. This is the beginning of a new bull market. The index has already performed nicely but opportunity seems to be developing in broader markets. Dips should be bought in to.

Close

We expect the broader market to improve from here. We are of the view that 12,430 is the immediate target on the Nifty, and on the downside, 11,500 would remain strong support in the short term for the index.

Q) Both Small & Midcaps witnessed a golden cross on their charts this week. Do you think uptrend is likely to continue? And, what should investors be betting in Modi 2.0 period – largecaps or midcaps?

A) A golden cross is a sign of medium to long term bullish trend reversal. Though Nifty registered a new all-time high recently, the Nifty Midcap index is down 19 percent and Nifty Smallcap index is down 32 percent from the all-time highs registered in Jan 2018 Highs.

Liquidity driven rally can drive good quality midcaps-smallcap from the current levels. So, the real opportunity lies in accumulating good quality midcap and smallcap.

Risk reward ratio looks favourable in buying mid and smallcaps at this point of time which are extremely oversold.

Q) At one hand the benchmark indices have hit a fresh record high but on the other, there were only around 50 names which hit a fresh 52-week high on the BSE. This is not a sign of a strong bull market. What are your views?

A) Yes, weak market breadth has always been a sign of bearish markets. However, we expect the broader market to improve from here especially after the major event of Lok Sabha election result has ended.

For the last one year, the performance gap between midcaps and largecaps has widened significantly and at the same time it is now expected to narrow down gradually from here.

This is the beginning of an end for midcap and smallcaps slump. This is the time to increase portfolio allocation in midcap and smallcaps.

Q) What are your expectations from markets in the first 3 months or 100 days? Historical data suggest that Sensex gave positive returns in 3 out of 4 election verdicts. Do you see a similar trend? 2014 (Sensex rose 8.2 percent), 2009 (Sensex rose 5.2 percent), 2004 (Sensex fell 5.4 percent), and in 1999 (Sensex rose 39 percent).

A) The focus of the market will shift to the next RBI Policy scheduled on June 6. Crucial Event of Union Budget is scheduled in the month of July. The sectors, which have been facing a slowdown in last quarters would have a lot of expectations from these events.

Considering uncertainty of trade war and weak domestic economic data, the upside would be capped to 3 to 4 percent in the near term for the Sensex and Nifty.

However, Midcap and smallcap indices could outperform and give more than 10 to 15 percent return in the pre-Budget rally.

Q) Top five stocks which witnessed a breakout recently and are ripe for cherry picking?

A) HSIL, KNR Construction, Capacite Infraprojects, Rites and City Union Bank.

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.

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First Published on May 26, 2019 08:23 am
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