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Last Updated : May 25, 2019 08:51 AM IST | Source: Moneycontrol.com

Monetary policy and Budget could be game changers for markets in the near term

There will be some momentary corrections until global issues such as trade wars, oil dispute, etc. subside

Kshitij Anand @kshanand
 
 
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There can be minor bumps and bouts of profit booking due to the elevated levels, but events like monetary policy and Budget can be game changers which can decide the direction of the markets ahead, Umesh Mehta, Head of Research, SAMCO 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 12,000 on the Nifty. Can we say that we might have made an intermediate top at these levels?

A. With the euphoria experienced due to the Modi Government coming to power for yet another term, markets bounced and touched inflated levels in the week gone by.

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Therefore, it is appropriate to say that indices have made an intermediate top at these levels. However, there will be some momentary corrections until global issues such as trade wars, oil dispute, etc. subside. A pick up is needed in domestic growth levers for a strong launching pad for another strong rally.

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. Indian markets are extremely fragmented as the gap between the large and midcap stocks is huge. While the largecaps rejoiced during the past year, mid and small caps have faced a tumultuous time.

Hence, as per the mean reversion theory, there can be some growth in the mid and small caps going ahead, considering they are available at cheaper valuations.

Meanwhile, largecaps are likely to face some correction. Investors should avoid large caps and get into selective quality small and midcap stocks but through the mutual funds route since the stocks selected by fund managers will be comparatively less risky and well diversified.

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

A. The fractured markets cannot be termed as secular bull markets. When there is a divergence in mid and small caps and large caps, an appropriate name would be cyclical bull markets which sooner or later correct to align with broader markets.

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?

A. 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). Since the frenzy around elections will take some time to die down and stabilize it is difficult to predict the market's behaviour for the next 100 days.

There can be minor bumps and bouts of profit booking due to the elevated levels, however, events like monetary policy and Budget can be game changers which can decide the direction of the markets ahead.

Q. Which are the top five stocks which witnessed a breakout recently and are ripe for cherry picking?

A. Our top five stocks which witnessed a breakout recently and are ripe for cherry picking are City Union Bank, DCB Bank, Kotak Mahindra Bank, PI Industries and Larsen & Toubro.

These companies are quality picks from a momentum perspective which can be good bets from a one-year time horizon.

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 25, 2019 08:51 am
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