Nifty @8450 levels can offer lucrative buy opportunities: JM Fin

The ongoing market correction could continue for a few more weeks but too much downside from current levels is unlikely, feels Gautam Shah, Associate Director & Technical Analyst at JM Financial. If there are no shocks in terms of US Presidential elections verdict or border tensions in India, then the 50-share Nifty could find a bottom at 8,450-8,500 levels, he says. "The market is still very solid in terms of technicals on the weekly and the monthly charts," Shah says. Since it has not done a 38-percent retracement of the rise seen in the last six months, he terms it "a very normal, orderly, sting-free correction".If the 8,450 level on the Nifty is breached on a closing basis, then there is possibility of a further 5 percent drop. However, whether or not market stabilises, he believes the next few weeks would present good buying opportunities with risk-rewards becoming pretty lucrative sub-8,500. "Upside targets are still at levels around 9,500 for the first quarter of next year possibly," he says.He also shares his outlook on the US indices like Dow and S&P 500 and on specific sectors like banking, Information Technology, Healthcare and automobiles.Below is the transcript of Gautam Shah’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Anuj: Do you think this market is headed towards the 200-day moving average?A: In our last interaction we said that since the markets have got closer to 9,000, the risks of a correction had increased. And we said on three counts, firstly the fact that targets were almost nearing completion, you had a scenario where in the markets were discounting way too much ahead of itself and the fact that there was too much optimism at levels closer to 9,000 and therefore, the risk reward was just not justified at those levels. And look at what has happened in the last seven weeks. This has really been the deepest correction since we started rallying from levels of Rs 6,800 and this has also been the longest correction time wise. So, the market is doing the normal, what is happening right now is a usual retracement of this entire run up that we saw in the last six months. And I would like to believe that this correction, while it could continue for a couple of weeks more, I would not give the markets too much downside from current levels. In fact, in an optimistic scenario or in a normal scenario, when I say normal scenario, I mean no shock verdict in the US next week and nothing unpleasant from the borders which has been pretty volatile in the recent past. If these two points are under check, the Nifty can find a bottom in the 8,450-8,500 zone where there is a lot of support. Yes the screen, today morning, might look really bad, but then you need to understand that this is a market which is still very solid in terms of technicals on the weekly and the monthly charts. We have still not done a 38 percent retracement of the rise that we have seen in the last six months and that is the reason, I really call this as a very normal, orderly, sting-free correction that has taken place so far. Can it get dirty? Yes, it can get dirty. If something unpleasant were to happen early next week, but I would give a very low probability to that and I would still like to believe that the Nifty can find a base around 8,450-8,500. If this zone gets violated on a closing basis, then maybe we start preparing for another 5 percent on the downside. But whatever the case, we are strongly of the view that this is a great buying opportunity. Somebody who missed the rally in the last 6-8 months, the market is presenting a good buying opportunity in the next few weeks. This is purely from an investor’s perspective because at levels below 8,500 the risk reward once again becomes pretty lucrative, because your upside targets are still at levels around 9,500 for the first quarter of next year possibly.Latha: Before I come to autos, I have to ask you about the Nifty Bank and the couple of public sector banks. In that dip which you say could be as shallow as 8,450 or at worst 8,200, would the banks be a buy? If yes, which piece?A: Yes, if you have to play the India story and if you look at the charts and the various sectoral indices, no rocket science that banking is probably the best play in the market right now. Again, while the screen today might not look all that great, you need to understand that the Bank Nifty gained 40 percent in the last six months from 13,500 to 20,500 and it saw such a big move, it did not even see a 4-5 percent correction. I go back to the 2003-2007 bull market wherein 10 percent or a 15 percent correction was also quite normal and then the markets went on to make higher highs. But this bull market has been so perfect, given the fact that corrections have been extremely shallow. And therefore, even if the Bank Nifty were to lose another 5 percent, it would be a good buying opportunity. And it is around levels of 19,000 where we see immediate support for that particular index.At levels of 19,000 the Bank Nifty would have seen a 1,500 point fall from the recent high. So, that would be ideal for the next phase of the bull market to start. And I do believe that if you have to take a 6-9 month kind of a view, the eventual target for the Bank Nifty is somewhere around 22,000. So, entry is somewhere in the 18,500-19,000 band would be perfect for investors because at those levels your risk reward is almost as good as 1:3-1:4.So, investors who are looking to buy this dip somewhere in this 18,500-19,000 area that is the zone wherein they should be looking at creating positions and within the Bank Nifty, the private banks look extremely solid. Yes, a couple of names in the space have seen a little bit of a beating, but if you look at the bigger names like Kotak Mahindra or IndusInd Bank or an HDFC Bank, they have been rock solid while the Bank Nifty has lost about 5 percent. And some of these names can be considered from a medium to long-term perspective.Sonia: I know you track the US markets very closely as well. All eyes will be on the kind of impact on the US markets post the presidential elections. At 2,100 on the Standard and Poor (S&P) 500, how does the chart look now?A: It is actually quite unnerving right now. And the reason I say this is because in the last 15 trading sessions, the DOW has been stuck in a 200 point band. So, it is almost like just about everybody in the world is in wait and watch mode and wanting to know as to what is going to happen early next week. And for the DOW itself and the S&P 500, 18,000 and 2,100 are very important support levels. If they get violated on a closing basis, it would definitely open up 5 percent on the downside and it would sort of be an advance indication that something unpleasant might happen next week. So fingers crossed, we will have to wait and watch whether these levels break or not. On the flipside, if the US markets were to rebound from these levels, then things can get back on track and we can still talk of levels of 19,200-19,500. The next few trading sessions will be important and I would really like to take a call depending on what really happens.Anuj: One large leg of the market is in a bear market. The IT index, even as we speak it is in a fresh 52-week low and led by a stock like Infosys which till about 7-8 months back was making lifetime highs. Things have turned dramatically here. What next for IT index and what is the strategy for stocks like Infosys?A: In the last 3-4 months, we have simply advised our clients to ignore this index. When you have a bull market that is giving you 30 percent in a matter of 6-8 months, you do not look at the underperformers. Healthcare and IT have really been the biggest underperformers in the marketplace. I do not think this is going to change because the leadership in the market this time around is very different. The market is being led by the metals, led by the banks, led by the oil and gas stocks and this strength is really going to continue getting into 2017. So, IT can see more pain ahead. However, given the fact that it is already trading at 52-week lows and some stocks are looking terribly oversold now, you could see a temporary bounce, because typically, when Nifty gets into a corrective phase, IT tends to outperform. So this is something that could play out in the next couple of weeks, but from a bigger picture perspective, there is no reason to buy into them just because they are this cheap. They could get cheaper and they are going to remain an underperformer. So, these defensive names are completely an avoid if you have to play the India story.Latha: Tell us about stocks like Tata Motors, in fact, the Tata Group stocks. They have a problem if their own. What are the charts telling you?A: It is really difficult to give you a holistic view there because you have to take a stock specific call. But, since you have been talking about autos, it has really been one of the pillars of this bull market. It has been a phenomenal mover, not on a one year, but even from a one year, two year or even a five year timeframe and it is a sector wherein you need to have a substantial weightage into. In fact, any portfolio in the Indian market that has grossly outperformed has a lot of autos in them and a couple of months back, people said that Maruti was expensive. And look at what has happened in the last 6-8 weeks. So, these stocks will continue to be more and more expensive, they have great set ups, and whenever the Nifty goes through a period of correction like now, you have to grab into some of the auto stocks and within the auto space, the two-wheelers are the ones that we are backing on very aggressively. So, that is a space that investors should definitely look at very aggressively.