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Nifty50 may touch 16,400 levels by September 2021: Dharmesh Shah of ICICIdirect

We prefer Reliance Industries, Kotak Bank, SBI, TCS, Tata Motors, Titan & Adani Port amongst largecaps while Trent, TeamLease, Ador Welding, Mahindra Logistic, Indian Hotels are among top midcacp picks, says Shah.

June 05, 2021 / 08:52 AM IST

The index reclaimed its all-time high in May on expected lines reinforcing our structural bullish view, and we see the Nifty heading towards 16,400 by September 2021, Dharmesh Shah, Head – Technical, ICICI direct said in an interview with Moneycontrol’s Kshitij Anand. Edited excerpts:

Q) What is your call on Nifty50 now that it has hit fresh record high, which you predicted in your earlier reports?

A) The Nifty50 has undergone a healthy corrective phase since February 2021, thereby pricing in COVID second wave-related disruption. The index regained its all-time high in May, on expected lines reinforcing our structural bullish view, and we see the Nifty heading towards 16400 by September 2021.

Our thesis of Index hitting lifetime highs was based on a key observation that, the Nifty has maintained a specific rhythm since its March 2020 bottom, wherein all three intermediate corrections have been ~ 9% followed by a rally back to its life highs. We expected markets to maintain the rhythm and recent price action panned out as per expectations

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Our bullish stance is backed by a) faster retracement of 10week correction in just five weeks that indicates robust price structure b) Current rally remains broad-based in terms of sectoral leadership that raises our confidence about the longevity of the structural bull market c) improving market breadth

The Nifty Midcap and Smallcap indices have outshone benchmarks so far in CY21. We expect their structural outperformance has further legs as they have embarked upon a bull market after a 3-year bear phase.

Our long-term relative strength model projects a longer run for these indices. Therefore, investors should adopt a buy on decline strategy for riding the structural bull phase in quality midcap and small caps

Q) COVID cases have risen from 11,000 daily cases back in February 2021 when Nifty hit a record high to around 2 lakh new cases when Nifty surpassed the initial peak in second wave. What is fuelling the optimism – FIIs are clearly not buying.

A) From the perspective of the flow, while FPIs have been net sellers in the last two months, the amount being sold is just ~Rs 11000 crore in the month of April and May after having bought ~Rs 56000 crore in January to March quarter.

DIIs have more than compensated the FPI selling in the last two months and bought Rs 13000 crore worth of shares.

So, effectively domestic institutions along with HN/Retail investors seem to be buyers in the recent recovery.

The Nifty after touching a high of 15300 in February 2021 has again crossed its all-time high in less than 4 months in May 2021 despite the second wave of the COVID-19 pandemic.

The quarterly results for Q4FY21 (when the economy was largely open) have exhibited a strong recovery across companies indicating the pent-up demand in the system.

Many companies have also shown operating efficiencies in terms of lower costs and reducing debt. Investors seemed to have taken cues from the Q4 results and betting on opening up the economy.

Investors also seem to have taken cues from last year sharp rebound in the markets when they were left under-invested.

Investors are now ready to forgo a couple of quarters of earnings on the hope of sharp recovery and sustained earnings growth for the next two years (Most estimates predict earnings growth of more than 20% for FY22 and FY23).

Q) Small & midcaps have been high fliers so far in 2021 – up more than 20% each on the index level. What is fuelling rally in the broader market space and what should investors do – book profits or stay put?

A) The broader markets have been outperforming over the last few months with sector rotation being witnessed as well.

With no major correction in the headline benchmark indices, investor sentiment remains buoyant. The results of many of the midcap/smallcap companies have also shown resilience.

Sectors like midcap IT, chemicals, PSU, pharma have seen relative outperformance. Re-opening of the economy may have a higher delta in terms of earnings growth in many of the associated companies in sectors like hotels, travel & tourism, leisure, retail, etc., and is therefore attracting investor’s interest.

We continue to advise buying/staying put in certain quality midcap names.

Q) Which are your top bargain buys at a time when Nifty50 is trading around unchartered territory?

A) We prefer Reliance Industries, Kotak Bank, SBI, TCS, Tata Motors, Titan & Adani Port amongst largecaps while Trent, TeamLease, Ador Welding, Mahindra Logistic, Indian Hotels, Dishman Carbogen, Mayur Uniqutes, & CanFin Homes are our top midcacp picks, amongst others

Q) Which sectors are looking ripe for a rally based on technicals and which ones are looking overheated?

A) Technically, BFSI, IT, Auto Consumption, and Capital Goods are the sectors that are expected to outperform and lead index higher.

Metals remain in the structural bull market, although after multifold gains in metal stocks over the past year, a temporary phase of consolidation would make the space healthierQ) What is your call on NiftyBank?

A) We remain constructive on Bank Nifty and expect the index to surpass its life highs and head towards 38600 by September 2021.

Here, we have based our prognosis basis a) BankNifty index has maintained its rhythm of not correcting more than ~20% since March 2020 bottom.

The recent correction was no exception and going by historical rhythm, the index is expected to challenge life highs b) The rally in BankNifty is more broad-based as private and public banking peers both offer favourable risk/reward backed by strong price structure.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Kshitij Anand is the Editor Markets at Moneycontrol.

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