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Last Updated : Mar 29, 2016 10:22 PM IST | Source: CNBC-TV18

Nifty may touch 7850 in long-term; like auto, bks: JM Financial

The recent rally, with no pullback, has lifted market sentiments, says Gautam Shah, Associate Director & technical Analyst at JM Financial.


The reversal in the market, seen in the last three weeks, has lifted market sentiments considerably, said Gautam Shah, Associate Director & Technical Analyst at JM Financial. No pullback in the last few weeks indicates a reversal to 15-months market downtrend, he added.

Nifty could move towards the 7,850 level in the long term, he said adding that 7,400 and 7,600 levels will be the crucial levels to watch out for. What works for this market is a strong momentum and stabilising global cues.

“The market is now making higher tops and higher bottoms,” he said, adding that one must buy on dips in such a market.

Shah is positive on sectors like automobile, oil & gas and banks. However, he is bearish on sectors like fast moving consumer goods (FMCG) and pharmaceuticals that did not participate in the market rally.

Pharma sector is now in a long-term consolidation phase and is expected to underperform in the coming weeks, he said. On the other hand, Bank Nifty is looking positive, he said.

Most of the bad news, in terms of stressed assets, is factored in for PSUs, he said, adding that Bank Nifty could move to the 17,000 level over a period of time.

Speaking on oil, Shah said that oil rising to USD 40 per barrel indicates that the worst is over. Shah’s target for Nymex is USD 48.50 per dollar in future.

Below is the transcript of Gautam Shah’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.

Latha: I would normally have started with the Nifty and the Bank Nifty, but anything particular in the pharmaceutical stocks? That set of stocks have been badgered for the past several weeks now and today has been particularly bad for them.

A: I am actually not too surprised with the way pharmaceuticals as a sector has behaved because if you look at this Nifty move that we have seen in the last many weeks, pharmaceutical is probably the only sector which has not really participated in and clearly, you have indications that money is flowing out. There are problems in the system, at least from a sectoral perspective.

Given that, pharmaceutical is a sector which is likely to underperform for many weeks to come. And, this is quite normal because pharmaceuticals was the poster boy sector for many years. And it has just gone through its cycle – it has completed its up-cycle and it is now in a longish phase of consolidation which is likely to continue for quite some time.

So, I think one should not really jump in to buy the pharmaceutical stocks, just because they have lost so much ground in the last few weeks. I think there could be more pain there because support levels are still far away for most of these largecap pharmaceutical stocks.

Reema: So, should we still persist with long positions in heavy weight pharmaceutical names or is it time to exit given that we are entering a long phase of consolidation?

A: As I said, pharmaceutical is something that is not on our radar at this point of time, because this has been an underperforming sector. And there are so many other sectors in the market which are moving beautifully with the Nifty and the Sensex. So, I do not think it makes any sense to really concentrate in them. And the risk reward also at this juncture, at least in the pharmaceutical space is not good at all.

But, then if you really look at the Nifty and the Bank Nifty, that is something which is looking extremely positive. This move that we have seen in the last few weeks looks very extraordinary and had this just been a pull-back for the market, we should not have gone this far. And it is quite amazing that, just a few weeks or positive price action has completely decimated a trend that has been in existence for about 15 months.

So, we are quite positive on the Nifty and the Bank Nifty set up at this point of time. Yes, there would be corrections from time to time, but the manner in which some of the important resistance levels have been surpassed in the last few weeks suggests that the buyers are completely in control.

If you look at the last 15 months, every time there has been a pull-back in the market, it has always stopped at an important resistance, because in downtrends, price action tends to respect resistance, but that has not happened in the last three weeks. And that is probably the indication that this is something different. This is something special and probably we have indeed seen a reversal to that 15 month downtrend.

And if that is the case, once the Nifty takes out 7,720 on a closing basis, which has been a problem level for the last 4-5 trading sessions, you could see the Nifty attempt a move towards 7,850 which probably is the most important resistance to this pull-back that has started from 6,800 and eventually, we head towards 8,000 and 8,300.

Yes, there will be consolidation along the way, but the way we look at it, 7,580-7,600 now becomes a very strong support for the near-term. And if this support zone holds, then the markets can actually make a comeback and yesterday might just have been a single day decline for our markets.

Latha: That is what I was coming to. We had this nice trending upward market, but yesterday kind of jolted our complacence, if you please. So, do you think 7,550? I think you said 7,580-7,600. We are perilously close to that level. An abrogation of that level would be serious?

A: I do not think so. If you really look at it in the bigger context, the Nifty has rallied 900 points in a matter of three weeks. Now, that is a big move and this is probably the biggest move we have seen in the last 15 months. So a retracement of about 30 percent of this 900 point move is quite normal.

But, given the fact that the momentum of the market is very strong, you are in the last few days of the month of March, you have a Futures and Options (F&O) expiry, the world is looking much stable at this point of time, oil is looking much stable and possibly, that commodity could have also seen its worst last month; all of these factors suggest that all dips in the market will be used by the stronger hands to buy into them.

And that is the reason I believe that 7,580-7,600 just for the next few days is extremely important. If it breaks on a closing basis, then maybe, we will have to work with the view that this pull-back extends to about 7,400, but whether you buy at 7,400 or 7,600, the important takeaway is that the market is now starting to make higher tops and higher bottoms, something that it has not done in the last 1-1.5 years.

That tells you that investors need to buy the dip. You might not be able to buy at the absolute bottom to this fall that is happening. But 7,600 and 7,400 look like very important support levels and a possible base for the coming weeks and coming months.

Reema: Let us talk about the buying opportunities at dips. You believe that the trend is upward in the banking space. Which are the stocks which are looking technically strong?

A: I would not be able to comment on specific stocks, but if you look at the Bank Nifty, this was the index which actually took the Nifty down substantially. It was such a big underperformer, it just kept making lower lows almost on a daily basis and when it reversed from that level of 13,400, the kind of rebound that we have seen in the private banking stocks and also, the public sector undertaking (PSU) banking stocks is quite commendable.

And I have enough evidence on the weekly and the monthly charts to suggest that the banking sector has seen its worse. And while the private banks have anyway outperformed, the silver lining is that the PSU banks, with the news trickling in almost on a daily basis in the last few weeks, the bad news has really got factored into the price, and that is the reason the PSU banking stocks have been quite steady in the recent past.

The way we look at it, the Bank Nifty could attempt a move towards 16,200 in the near-term, but our eventual target for that index is about 17,000 and on the downside, all pull-backs towards 15,500 should be a buying opportunity.

So, from a trading perspective, you could look at the PSU banks because the momentum is much better there at least for the time being. But, if you are looking for a buy and hold strategy, the private banks, the larger 4-5 names in the F&O space have the best setups for 2016.

Latha: What is the view you have of the global markets – the risk appetite that we see in commodities and equities globally? After rising from about sub-USD 30 per barrel, we have seen crude again finding a roof at USD 40 per barrel. Is it a temporary pause and we should see the risk rally continuing and therefore, what is your eventual target on the Nifty?

A: It is quite unbelievable how things change in the global arena, because just a month back, we were talking about similarities of 2008 with 2016. And with what has happened in the last one month, things have just turned around completely. And what you need to really need to watch is the volatility index (VIX), because the volatility index tells you as to what kind of risk appetite is there in the market.

Now, not only has India VIX come off substantially, it is currently trading at levels of about 17-17.5. But if you look at the VIX for most of the global markets, they have also come off sharply. And that is sort of an indication that yes, there is stability in the system.

You might say that oil is responsible for that and I am not too surprised, because USD 26-28 on the Nymex Crude was a long-term support. Obviously at that point of time, everybody had targets on the downside, but rebounding from that level to levels of close to USD 40 gives me the belief that the worst is indeed over for Nymex Crude.

And now, while USD 34-35 is the sort of intermediate support for the next many weeks, the eventual target for this run for crude oil could be about USD 48-50. So, it should gradually get there.

Given that, Indian markets, as I said, we are currently positioned for a move all the way up to 8,300, but as I said, 7,850 to me is a very important resistance and this is a number wherein the bulls and bears will really fight out between themselves. And once, 7,850 gets surpassed, that will be an indication that the medium-term trend has got strong once again.

So, we are taking it one step at a time, we understand that the Nifty has already moved up about 900 points. So, one has to be very careful in terms of stock picking at these levels. But the way some of the banking stocks are placed, some of the auto stocks are placed, the way oil and gas has outperformed in the last one month, all of this really augurs well. So, these are the sectors that we would really recommend investors to get in from a medium-term perspective.

Reema: Would you also recommend entering the fast-moving consumer goods (FMCG) sector and stocks?

A: Not really. FMCG, just like pharmaceuticals, has gone into sort of a range and any sector that does not move with the market, is clearly an underperformer. And if you look at what ITC and Levers of the world have done in the recent past, it is not very encouraging.

There is a lot of strength in the auto space, in the oil and gas space, I would really recommend those stocks and sectors at this point of time. Pharmaceuticals and FMCG would really be the underperformers right now and it does not make too much sense to be buying into them.

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First Published on Mar 29, 2016 10:45 am
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