Nifty likely to see 9100 levels soon: Rare Enterprises

Post the major economic triggers like the Brexit and RBI governor Raghram Rajan's bowout, the Indian markets have bounced back, and Atul Suri of Rare Enterprises believes that the inverse head and shoulders pattern of Nifty50 will get around 9100 levels soon. He added that despite the ongoing volatility in the global markets, he is optimistic with the way many Indian sectors have performed; EMs are gaining strength as opposed to the developed nations. "India may soon get to the level of outperformance and the sectors that will lead the charts are consumer, FMCG and auto," he said. "Pharma has been a disappointing space. In the last three months they have been the most underperforming sector after performing well for 3-4 years," he maintained.  He is also bullish on gold and added: "After a great run-up it has a long correction. Gold is a defensive bet and a favourite among hedge fund managers."Below is the verbatim transcript of Atul Suri’s interview with CNBC-TV18's Sonia Shenoy and Anuj Singhal. Sonia: I can see that you are happier to be alive and you are happier to see that the markets are very much alive at this place? A: Absolutely, you come from a holiday and you land into this Brexit thing - it does have its emotional up and down but from where we are right now it is very heartening. The way the market has played out is very important. Because if you look at the market - let us see the last six months, we are at June 30, so, we have got six months behind us. What you will notice is that in this it has created a pattern of an inverted head and shoulder. With the bottom, with the kind of low point being on February 29, 2016 that is again exactly four months ago, we were at 6825 or something like that. So, really what we have done in this whole phase is created a pattern which is a very good reversal pattern which is a inverted head and shoulder pattern. With a neckline or what we call the breakout level being just under 8000 and we had taken out that level and we were really trending up to 8200-8300 and you had this whole Brexit issue that came through. Now the important thing is that very often whenever pattern breakouts are made they get retested. Those breakout levels get retested. So, that 8000 level in fact on the back of this incident got retested. And what is impressive is the way the market has behaved. It is not just the index point etc but the behaviour and the qualitative angle which really gives me that the target of this inverted head and shoulder comes to 9100 and 9100 coincides with our previous high. So, the set up is very good and for all the volatility at the end of it a week later things are still good. So, I still think that we would get around 9100 which should be almost like a near new high and 8000 which got tested recently would be a very important level for this rally. Global markets are very volatile and things are still fluid, things are not over and you may have your volatility. At what point will I be really sort of crest fallen or heartbroken and that level is going to be more towards 7800 or thereabouts. So, I would still hold my bullish view and I do feel that they would get to 9100, 8000 being a very important level. And as I said this incident of the last week has actually made me a little more confident, little more optimistic, the way the sectors have performed, the way the stocks have performed and this story is not just about India, it is also about a lot of play that is happening in the emerging market (EM) space versus developed market space and things like that. Anuj: Of course one more reason for your happiness is because you have got the last move right, in that last series expiry. You were talking about it, you were reading some of the charts and you did see a big breakout of 300-400 points and you captured that in full. What is the next breakout for our market. 9100 of course will not happen in one go, it will happen in stranded phases and for a lot of our viewers they want to know what is the next breakout, what is the indication on that? A: Rather than limiting to just a Nifty level let us look at again a bigger global story because at the end of the day we are a subset, a part of the globe. So, what we have seen is that for the last - I think the big theme what I wanted to discuss - is that the last four to five years we have had an EM underperformance. The developed markets have done well. They have held out and EMs have been depreciating. Thanks a lot due to China etc but I sense specially with the incidents of last week that maybe this reversal is happening. Maybe this trend reversal happening and this will be very important for India because we are a big component of the EM space. So, this space of underperformance of the EM will end and we may actually get into a level of outperformance. If you look at the market for the last one week also pre and post Brexit lot of EMs are positive. Look at Thailand, Chile, India is almost there. There are 7-8 countries and they are all in the EM basket. And if you look at some of the developed market specially in Europe FTSE is a different story because that has its own dynamics. But if you look at countries like Greece, they are still 10 percent off. You look at France, Belgium, Germany for that matter. So, what I really think is that if you look at global market charts you will find that there is a huge kind of pressure that is going to be in the Euro Stoxx 50, that chart and all those market is a subset of that. What you really think is that the EM space would actually kind of get into a space of outperformance. So, I really think though it is just a theory but if that happens it will early be big because India itself is favourably placed in the whole place and second is if the whole asset class sees fresh allocations. Look at Japan, Europe these charts are pretty dismal. Sonia: But the Dow Jones are not bad. Dow is at 18000 and it has also turned into the black for the year? A: Yes, so when you look at EMs it is not just the US. There are lot of other EMs, you have got Japan, you have got Europe. So, we don't have to see the Dow only. Even if Europe, ex-FTSE, don't really pull their weight I really think this whole equation, this 4-5 year kind of downtrend that is there in the ratio chart could change and that will have a very big impact and that could be a trigger for the levels that I have been discussing. So, there is a tectonic shift that could happen. The potential is there. I have a hunch, I have been seeing it for the last one week and fingers crossed. Anuj: Let us talk about the bigger sectors, Banks and IT. Do you see leadership from any of these sectors because if the market has to move one of these two or maybe both have to move? A: Yes, they both have to move but based on the performance of the last few days and weeks clearly three sectors that stand out. First is autos, FMCG and your consumer theme. Clearly you can see that the distance to life time highs, they are all some 3-4 percent. Your midcap index is kind of almost there. So, as far as leadership goes you do see leadership in those spaces. Yes, banks and IT have been relatively on a weaker wicket but even banks I have always liked to split it into two spaces - the private sector and public sector undertaking (PSU) banks. There you see that still the private sector banks have sublime charts and those would still propel that index higher by virtue of its weightage. So, I am not despondent on that thing. The way the private sector banks are they will still go higher. The rate of change or the momentum will be less. These preferred sectors the rate of change would be less. The tail is wagging really hard and the percent gains are higher but I am not sort of gloomy about banking space also. I do think you will have new higher in very many stocks. Sonia: In fact the last time we spoke to you we discussed that 10460 Nifty target. At that time it didn't look so likely but now given the sentiment it looks a little more likely. Would you stick to that target by the end of the year? A: Yes, that is a much longer term thing and you have had your correction that has been fairly deep. But at the moment getting into new lifetime high itself is going to be the big one because yes, the moment you get stocks getting into 52 week highs and lifetime highs the quality changes. The behaviour changes. Essentially they are stocks with no resistances. You don't have any past baggage. So, those stocks take on special things. So, also with index. So, for the moment a big thing for us will be also to get to 9100. Then we will look at those other targets. Anuj: I want your thoughts on two particular dynamics, one is the dollar index, how is that looking to you and gold, though the risk assets have again taken over but gold has also done well. So, how would you look at that? A: Gold is a more exciting chart. So, gold if you again look at the thing, it had multiyear kind of down - after its great run up - it had had quite a long sort of correction or what you call the change of trend. And that has got reversed few months ago. The important point is that gold is your kind of defensive bet etc. But that is not what it is doing right now. It is not that the equity goes up, gold goes down. In fact gold is also going up with that. So, essentially I feel that gold chart has turned on a good medium to long term basis and they are on a very good thing. They are around 1,320 or whereabouts. So, 1,435 is a very important level. I feel gold will run up to those levels in this current up move. If it is able to take that level out then you will have gold that will - again like how it was a couple of years ago - galvanise all market participants imagination and householders also. Sonia: Did you catch the run up in gold, did you buy any gold for your wife, six months ago? A: No. It is a different world. Anuj: In terms of some of the other sectors, what about pharma because that is something which you used to like earlier. It went through a deep bear market. Do you think the charts are showing bottoming out process. I have seen a couple of them like Lupin, Dr Reddy's bouncing back from the lows, any call here? A: Yes, personally for me pharma has been very disappointing because even during the correction that is more than a year old pharma held on really well. It is only towards the fag end in the last three months. So, probably I would guess that the most underperforming sector in the last three months would be pharma which was an outperforming sector for three to four years prior to that. So, pharma has been disappointing and stocks have got hit. But you are right that even in the last week or so I am seeing a certain accumulation kind of pattern whereby in spite of the volatility these stocks are not really cracking. In fact everyday they are ticking up. These are stocks that were for the last 2-3 months have been having downticks every day or every week. So, you are seeing a kind of bottoming formation and it is not just in one or two. It is in the larger players. In fact if you remember the larger players were the ones that got hit the first. Names that you mentioned. So, you are really seeing some sort of accumulation thereabouts but to say they were again going to go back to its glory very soon, that may not be the case. The accumulation is the first stage of it and you will see once the loose or floating stock gets absorbed, then these things start ticking up. So, it will be very interesting for people who like to look at correction or look at certain beaten down sort of spaces this is a great space to look at. I am still very bullish on the longer term thing of pharma but yes, the last three months have been a bit painful and disappointing more so because of the other sectors have done very well. A case in point is reality - real estate. It was one of the weakest sector in the last three to five years but I dare say that it may probably be the best performing in the last three months and even if you look for someone who is a contrarian or who is able to take that kind of volatility that goes with the real estate those charts look amazing. So, there could be some very big reversals there. Sonia: Pharma has another sector for company which is the IT space. It has been quite disappointing, this month most of them have lost about 4-5 percent. What would you do here? A: There are certain pockets in the IT space and specially some in the midcap space that are showing a lot of fizz. So, one would really have to be in those pockets. Even in the large caps there are one or two which are very decent charts. I won't like to name them. So, we will have to be really selective. It just cannot be across the board whereas some sectors like FMCG and autos and all which are pretty much across the board. Everything is doing well. Two-wheelers, four-wheelers, even some of the ancillaries are doing very well. So, it is a different theme. So, as I said IT will have to be little more selective. But it is not gloomy out there. There are some good charts still there. Anuj: Did you catch the sugar rally and are you surprised by that? A: I tend to look at trends in a little longer time frame and I am very cautious or wary or probably that is not my skill set to look at cyclical moves or fast moves. So, for me for a trend to emerge and for me to get in right at it has to be multiyear trend because over the years through my experience or getting to know myself better I really tend to know very well in multiyear trends rather than multi week trends. Anuj: So, let us talk about multiyear trend on crude for example. Because that is also having implications for our market and listed stocks here. What is that telling you, is the bear market in crude over? A: The kind of bottoming that we have seen has been very impressive but I don't see crude running away, unlike gold. Gold has a potential which again has had a correction which of course bottomed out before crude. I have a sense that gold at some point in time those levels of 1,430 can run away after that. In crude I don't see that kind of run away. Crude what you may have is a longer kind of range formation and you may have some sort of bottoming or something that may be less exciting from a traders point of view. So, in the commodities space the most interesting chart continues to be the precious metals, gold, silver, platinum, palladium etc. Sonia: The most interesting takeaway for me from this discussion is that tectonic shift that you spoke about in the EM and that the underperformance will end quite a bit. So, within the EM what tops your market list now in terms of your preference and should we get ready to wear our 30,000 t-shirts again? A: Don't do that. Whenever we see where it is, oh, it is ending soon. So, this reversal that you are seeing which I kind of sense may happen as I said will be very beneficial for India because India is well placed. If you see on a standalone basis also compared to the whole EM space we stand out. Yes, you may have issues of valuation but valuation is a question of perception and it is very relative. What is cheap for somebody is expensive for others. So, in that space India stands out independently as a chart. It is not very far from lifetime highs, it can get there very fast and sort of move on. You look at some of the midcap spaces, look at the number of sectors that are at lifetime highs, number of the stocks at lifetime highs, that is very impressive. So, even on the whole EM space India will stand out and by virtue of as I said that asset class close if they do come fingers crossed and where India is placed in that space. So, I really my fingers crossed and I continue to remain bullish and that is why I set out those targets. Brexit, no Brexit, whatever. You had Rajan exit, you had some serious incidents which three months or six months ago told to us we would have said no, this market is going to collapse and at the end of it we are again at near recent highs. It is like when you look at a stock, when a stock doesn't go down on bad news that is a sign of a bullish stocks. And a market that doesn't go down on two big hits, and at the end of the day we are at the upper end of the band and that is what gives me confidence. As I said these are markets, these are judgements, they are game of probabilities. One does have stop losses and as I said I would still keep 8000 as a very important support and a stop loss for my trades. But then that is what is my view and that is how you play the markets. Anuj: We have been discussing technicals but there is more to you than just technicals. Have you read any of the recent hedge fund data and all that is something that you were doing in terms of where the money is flowing? Any analysis on that front? A: Gold has been a very big favourite amongst some of the very big guys and they have been very public about it. So, coupled with the way the charts are forming, of course, also when some of these big boys get into gold that makes you worry as to what is going to happen in the rest of the asset classes which is where we are exposed. But again all world or all globe or all equities is not one space. As I said I continue to remain bullish on India but one big flow I see among the big guys is gold. So, personally I think it is very important that we have some exposure to gold, certain allocation to gold and that could be interesting because once you are allocated an asset class you start looking at it and you start participating in it. And whenever spurts happen you are able to double up or increase your bet size. So, that is why certain interest or element of look towards gold is very important. Sonia: So, if someone has not participated in the gold rally just yet what should be the asset allocation be. Up until now people should say 90 equities, but maybe 10 gold. But what is your allocation? A: That depends where you are. If you are a trader it is a very different scenario. Sonia: If you are a long term investor? A: I really think something like a 5-10 percent kind of allocation towards gold. You can also get in through gold stocks. Very often gold stocks do much better than the underlying asset class. You look at gold miners in the US. They have kind of doubled. They have 50-100 percent return in gold miner stock, the underlying asset class hasn't moved. So, even in India there are a few stocks that are proxy to that. One can hopefully get into that. So, you could be in equity still, if you don't want to get into a different asset class and yet have that kind of exposure. So, I really think when I look at world hedge fund data or commentary by hedge fund managers one does sense that they do have a large exposure to gold. Anuj: Is there a risk that we are getting too bullish, is there a risk of complacency. Gold moving up, CBOE volatility index fallen into 16, our volatility index falling to 16 in markets we have got to be prepared for all eventualities? A: That is part of the game because no market goes up vertically. It has its zigzags and these zigzags are nothing but a case of over optimism or getting little complacent and that is what leads to correction. So, that is a part of the game and that is more dynamic, that is more weekly or a monthly kind of thing. Yes, that risk is something we run but that is always going to be there. As I say, bull markets are built on walls of worries, the great George Soros said that. If you take away all worries and all problems from the markets rest assured we won't have these markets.