Nifty may hit 8700-8800 by year-end: JM Financial

As far as global markets are concerned, he said that the developed markets may see a consolidation phase in short-term. On currencies, he said that Dollar index in multi-month bull run, may hit 90-92 and the India rupee may appreciate to 57-59/USD by year-end.

Below is the verbatim transcript of Gautam Shah’s interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy.

Latha: Will it be a great year ahead for the Nifty, first chart it out for the remainder of 2014 itself. Are there some dips to be seen, will the 8.200 level be conquered will we set new highs?

A: In a bull market dips come and go and that should really not bog you down. It is quite amazing to note that for the last 14 months our market has not seen a single 10 percent correction and this is a very important statistic because it actually tells you how clean and how strong this move has been. The last time something like this happened was in that period of late 2002 and whole of 2003 and it is almost after 10 years such a development has taken place because people keep talking of correction, excesses in the market but what we have seen in the last many months just time correction and no real price correction.

The set up continues to be quite healthy. There are four aspects to this current market set up; from a technical perspective, sentimental perspective, seasonal and global. From a technical perspective I am extremely pleased with the way the markets have behaved in the recent past because early October you had the markets get into a little bit of correction and we actually saw a 5 percent fall but then it just took the market four days to cover up three weeks of losses. So, that tells you the bull market is definitely intact and the underlying trend of the market continues to be very strong.

The markets are also back above the moving averages; most of the technical indicators are well placed now. There was a little bit of a worry in August when things started to look a little overheated and the weekly charts had turned very overboard with some legs of divergence but all of that has really got nullified after the kind of time correction that we have seen in the late September and early October.

From a sentimental perspective we have enough clarity looking at the F&O data that there are no excesses in the system at this point of time. You don’t have a scenario wherein just about everything is moving in the market even when the Nifty has been steady you had so many sectors like metals, power, Public Sector Undertakings (PSU), realty, infrastructure all of these sectors have come off quite a bit and that has really lead to this market balancing it out from a sentimental stand point and you do not have a scenario wherein just about every sector is doing well. So that is great news.

Seasonally we are in a very sweet spot, because I have said this many times in the past, the month of October probably has the worst track record for our markets and once again magically the month of October has played out perfectly because you had a pretty decent correction in the Indian market in the first half and the global market saw a much deeper correction and typically the lows of October tend to hold out for a long time and we are just few days away from entering the month of November and November and December typically are months wherein the sentiment and trend is quite upbeat.

From a global stand point things have improved quite a bit in the recent past because some of these US market indices and European market indices witnessed an 8-9 percent correction but the quick and sharp rebound that they have seen in the recent past suggests that things are getting better there as well. Therefore all of factors put together suggest that the market remain on a strong wicket. 8,050 is sort of an important resistance from an extreme short term perspective. Once that gets taken out we are looking at the Nifty hitting new lifetime highs and we feel that eventually the target for this leg of the move is about 8,600-8,700 and we hope to see this level before the New Year.

Sonia: A couple of weeks ago the only reason for which this market could have corrected was global but that as well has recovered. In fact this morning Goldman Sachs has put out a note where they expect to see the S&P 500 at 2150 by the end of 2015. What is your prognosis on US markets now?

A: It is a bit of a tricky call because US markets tend to see a lot more whipsaws than some of the Asian markets or the emerging markets. I would like to believe that the US markets are not going to make a higher high in a hurry because this correction that we saw in the first half of October in US and Europe tells you that there is some sort of reversal and this is just a temporary bounce that has taken place.

So in that sense India might not really see a clean move up from current levels but I am pretty sure that the Indian markets are going to outperform. Yes, the US market volatility could lead to some volatility here as well but the US markets will now broadly get into a range on the downside above 16,000 and on the upside above 17,500 on the DOW and it will just stay very volatile within this 1,500 points band.

Let us not forget for the last two years the US markets have been making higher highs consistently. But in the last three months those higher highs have not been backed by the technical indicators. That is a reason I would like to believe that at least for the time being the developed world is going to see a little more of consolidation and correction but if you look at the local news flow it has really got better and better in the recent past. So if you really have to go by the local factors November and December looks like really good months for our markets whatever might be the case in the US and Europe.

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Latha: For the past four weeks we have seen IT give up and bank Nifty gain. Does this trend have more legs, both the downside for ITs and upside for bank Nifty?

A: Yes, this correlation is likely to play out in the next four to eight weeks because the Nifty has been able to rebound from levels of 7,700-7,800 because of the bank Nifty. That is good to see because in the last two-three years every time the bank Nifty has led the market higher those highs have always sustained. I am very pleased to see the way the bank Nifty has behaved and within the bank Nifty the private banking stocks.

Also what I have noticed is that the CNX IT index seems to have seen a blow off around 11,500 and the way it has behaved in the last five to seven trading sessions it makes me a little uncomfortable. It makes me believe that maybe the defensives are going to be out of favour for the time being. For the bank Nifty itself we have been a big banking bull and we continue to recommend our clients to stay long. For people who just want to participate in this bull market without entering and exiting we have an eventual target for the bank Nifty of about 19,000.

So till we do not see those levels there is no reason to trade the bank Nifty but for short term and for medium term traders 17,200-17,400 is what we are looking at. Typically stocks and sectors that do well in the bad times which is the bank Nifty, capital goods space they tend to run away in good times and I really see that happening in the next four to eight weeks.

Sonia: If and when this market takes out new highs what are the leaders that will take it there?

A: As I said my top picks would be the bank Nifty because we are still looking at it as a very lucrative space from a risk reward angle. Apart from that I really like the set up of the capital goods index. The index had seen a 3,000 points fall in the last couple of months. It had developed a sort of pattern on the charts and from that very pattern we have seen a break out in the last three or four days and the strength in stocks like BHEL, Siemens, L&T really explains that. This is just the beginning of the next phase of the big move in the capital goods space. It is an index heavyweight space; these are big names, big market cap names which have the potential to take the index with it.

So I would like to believe that the capital goods index could potentially see a 12-15 percent move over the next 3-6 months and this is one of the better spaces n the market right now.

Apart from these two oil and gas even though has been a sort of a laggard. From a buy and hold perspective the risk reward is very good because after the rally seen early this year oil and gas also has got into a bit of a consolidation. Yes, ONGC and Reliance have underperformed but apart from these two other stocks in the sector including the OMCs have done very well. So these three would probably be my best picks and along with these three I would also go for autos. I have always said this on your channel, good times or bad times you need to have a pretty large weightage in your portfolio in autos because they are stocks that are making new highs on weekly basis and I really don’t see this trend reversing for months to come.

Latha: We have a question from one of our moneycontrol boarders Kotagiri from Hyderabad. He asks what are the prospects of Crompton Greaves in the short term, that stock obviously has taken a 10 percent knock in the recent weeks?

A: It is difficult for me to give you a specific stock call because of compliance issues but as a space we like it and typically these are stocks that rebound from support levels. So if one is really long and one is worried becuae of this 10 percent knock I don’t think that is a good idea to exit because as a sector we really like this space and therefore I would like to believe that the stock will rebound sometime in the near future.

Latha: What are the technicals of crude suggesting, actually not just for the rest of 2014 but even for the better part of 2015, is this a long term bear run?

A: No, I don’t think this is a long term bear run, it is all about the dollar index and what kind of impact that is having on gold and some of the other commodities and given all of this with what oil has done I am very clear in my mind that the dollar index is in a multi month bull trend and eventually we are looking at a target of about USD 90-92 there which might mean that some of these commodities will continue their downtrend. Crude itself around USD 75-78 long term support really kicks in. So I would be surprised if it were to break this zone immediately but I would like to believe that between USD 75-90 is where this commodity might just play around in the next 4-8 weeks and we will have to really look at it from there but frankly I wouldn’t look at significant downside from current levels.

Having talked about dollar index let me also talk about rupee because that has done something very interesting in the recent past. Most currencies in the world have depreciated against dollar with what the dollar has done in the last one month and that has really been the talking point in the recent past but the rupee has been stuck in that Rs 60-62 band and by staying stuck it has actually appreciated and I would like to believe that eventually the rupee will also appreciate to levels of Rs 59-57 and that will be the time when you will see Nifty trading at 8,600-8,700 levels possibly by the end of this year.