After a swift rally of more than 1000 points, a mild pullback cannot be ruled out. Though the outlook on the market is still bullish and traders are suggested to keep a buy on dips approach.
After a swift rally of more than 1,000 points, a mild pullback cannot be ruled out. Though the outlook on the market is still bullish and traders are suggested to keep a buy on dips approach, Umesh Mehta, Head of Research, Samco Group, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:Q) The RBI kept rates on hold but assured that the GDP rate could well turn positive by Q4. But, history suggests that stock prices are relatively better predictors of future GDP’ than the other way round. What are your views?
A) The Monetary Policy Committee (MPC) decided to keep the repo rates unchanged as expected but markets cheered the good commentary on GDP outlook and other liquidity measures.
Research suggests that lagged GDP data has no correlation with stock returns although stock returns are relatively better predictors of GDP numbers.
The stock markets are meant to be forward-looking which does suggest faster economic recovery. But, this is subject to a lot of uncertainty created by the pandemic, and a second wave or further lockdowns can turn the entire forecast upside down.
Additionally, a number of factors have to fall in place for the GDP to materialize as planned, and given the volatility in stock markets, it is not the ideal indicator for the prediction of ground-level reality.
Q) Nifty50 reclaimed 11800 while the S&P BSE Sensex rose above 40,000 in the week gone by. What led to the price action?
A) The Nifty50 continued the rally for the 7th day in a row, but the week’s rally was one of the shallowest in terms of stock participation from Nifty50 which was less than half.
Small & midcaps did not participate in this uptrend. This rally was led by FPI’s pumping money in the Indian markets throughout the week, while DIIs continued their selling spree.
The price action was also led by positive global trends as expectations grew of a Democratic victory in US elections next month and hopes for more US stimulus. The markets cheered the RBI monetary policy and liquidity measures on Friday as well.
Q) What are the important levels and events (micro & earnings) which one should watch out for in the coming week?
A) After a swift rally of more than 1000 points, a mild pullback cannot be ruled out. Though the outlook on the market is still bullish and traders are suggested to keep a buy on dips approach.The immediate support and resistance levels to be watched in the short term are 10700 and 12020 respectively. Quarterly results will pick up the pace next week onwards after a strong earnings result by TCS this week.
It would be important to see if other IT majors including Infosys and Wipro which will report results in the upcoming week, follow the same suit.
Q) In terms of sectors, IT and Banking stocks remained top gainers. What led to the price action in this space?
A) TCS kicked off the result season on a great start leading to price action in the IT sector. Strong results and positive management commentary fueled the rally on expectations of a multiyear tech revolution.
The rally in the banking stocks was led by positive growth in deposits and loan books announced by the majority of the private banks in their quarterly updates.
Other than that, banking stocks were also in focus due to the Supreme Court hearing on loan moratorium and interest waiver on Monday.
Q) What should investors do --- Sensex touches Mount 40K while Nifty50 trades above 11800 levels? Time to put fresh money, hold for a dip, or book profits?
A) The Nifty 50 closes above 11,900 but with low stock participation. With the result season starting, it would be prudent to wait and watch to reckon how sectors performed during the staggered unlock period by giving special importance to management commentary and demand outlook.
Going ahead, markets may witness sectoral churning and Nifty50 may continue to remain subdued with stock specific significant movements. Investors are advised to wait and watch and initiate buy positions only on dips.
Q) There are 178 stocks above Rs 500 cr Mcap that are trading below 200-DMA despite strong rally seen in benchmark indices. There are 19 stocks that fell 10-50% since March (six months), and are also trading below 200-DMA. Does that mean that investors will be better off moving away from laggards?
A) Judging a stock only on the basis of its 200-DMA would be an incorrect approach. Ideally, investors should conduct sufficient due diligence and risk profiling while separating quality gems from the abundant haystack of stocks.
If stocks have lagged and are below their trading DMA they could have either underperformed or they could be good value buys who just haven’t gained momentum yet.
It is better to study the fundamentals and reasons for their underperformance before generalizing an approach to pick stocks.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.