See Nifty at 10700 by Dec 2015; Bank Nifty to lead: JM Fin

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

Sonia: Record highs, 8140 has been crossed effortlessly and 27200 on the Sensex. In terms of the bull run are we still in the nascent stage you think or now we are somewhere in the middle of this bull run and you should start to weigh the pros and cons at this point?

A: The markets continue to be on a very strong wicket. How much of a cliché it might sound but the bull market is on and is here to stay. And the way the markets have reacted to some adverse news flow from global markets in the last couple of months, I think that is quite incredible. In fact if you look at the price action itself sometime in late July and early August there was this set-up on the charts which had turned a little weak and it is because of that we said last time that may be the market should see a period of correction.

But what really happened was very interesting because the Nifty just saw a 300 points correction from that level of 7,800 to 7,500 but if you look at the way the sectors and stocks behaved out of the index, it was completely a different story. The oil and gas index, the metals index and the capital goods index lost 10 percent each while the Nifty was in that range and it just lost about 300 points and you had a scenario wherein the Bank Nifty underperformed for as much as three months, mid May to mid August and obviously we have seen the way the reality in infrastructure sectors have behaved. So if you look at all of these factors, what we witnessed was really a running correction which is very typical of strong bull markets and we have seen something like this in that 2003-2007 period.

This market is clearly headed higher. The way it has taken out that 7840-7950 resistance in the last couple of weeks, that clearly suggests that this market just does not want to correct. Yes it is slightly overbought, I think a lot of technicians might argue looking at some of the divergences, but I don’t think that is important because in bull markets you have to give complete important to the price action and I think the price action has been extremely smooth as you pointed out.

Also when we look at technical studies I think the moving average is one study that works brilliantly in bull markets. You can see 2003-2007 examples and every correction in the last three and half months has stopped at the 50 exponential moving average. So this is something that has been working well and therefore we would like to monitor it and that is the reason I believe that till the Nifty is above 7800-7900 which is the new base for the month of September, I think this market is clearly headed higher. Yes there will be corrections from time-to-time, but that is purely going to be a minor one.

I think 8200-8250 is a minor resistance area which we have been working with in the last couple of weeks. We are almost there but the market will deal with it, but eventually in this leg of the run we see the Nifty moving towards 8600-8700 and there we will have to do a review of the step-up whether the market continues to move higher or whether we see another period of correction. The reason I say this is because October has historically seasonally been a little negative month for our markets. So keeping that in mind, the next two-three weeks looks pretty comfortable but as we get into October things might just turn a little negative.

Latha: When you say comfortable is there a level that the market should worry about?

A: You know bull markets do not have levels because you are trading in uncharted territory and you really don’t know where it is going to stop. I once again give you the example of 2003-2007 when the Sensex started off moving from 3000 levels, who thought that it is going to go all the way upto 21000 and it is going to terminate there. So it is very difficult to put a number to the current bull market. If I have to really stick my neck out for the next 12-18 months, the eventual target for this bull market could be about 10700 on the Nifty and we could be there by December 2015, but this is a target for investor clients.

For people who are trading this market on a regular basis, on a weekly basis, I think every small correction looks very damaging because even if the Nifty loses 100 points, you have a scenario where in suddenly you have so many stocks losing 10-15 percent. So from an investors perspective, you need to deal this market differently and from a trading angle you need to keep a close watch at support levels. Also I feel that this is really the first leg of this bull market.

The last time I mentioned that may be the market has completed the first leg, but I think the first leg of any bull market has a very fairly tale feeling to it because just about everything is perfect, the volumes are good, momentum is great, the news flow gets better as we have seen in the last one and half months. At least on the local front and there seems to be a herd mentality, there seems to be a herd which is active in the market and till the market does not really satisfy the appetite of people who want to go long in this market, I don’t think you will see a serious correction of 10 percent which has really not happened so far. And this move that we have seen so far from January to September, I think is very similar to that move that we saw in 2003 wherein the market doubled in about 8-10 months or may be 12 months.

At some point of time just about everybody is going to be satisfied right from the stronger hands to the weaker hands and once they are satisfied, you will see a 10 percent correction which has to happen at some point of time in the next three months. Then may be we start the next leg of the bull market which is going to be much more measured.

Sonia: So what are the stocks that could take the market to this 10700 level by December 2015?

A: I am very encouraged with the way the Bank Nifty has behaved in the recent past. Even last time I mentioned that since the Nifty is making higher highs and the Bank Nifty is not doing that, it was a little uncomfortable because in the past if you look at the correlation, they generally move hand in hand and whenever the Bank Nifty has led the Nifty higher it has always been a sustainable move.

For three months the Bank Nifty stayed in a 2000 point range and once it broke out above 15700 last month, I think that was a very positive sign because the Bank Nifty has behaved perfectly from January to mid May, it saw a phenomenal rise which all of us saw and all of us made money out of it. But thereafter this three months of underperformance has made the setup really strong. And now we feel that the banking index is really ready for the next big move up and our eventual target, investors target for the Bank Nifty is about 18700 to 19000. So there is serious money to be made in this particular index.

Within the index itself I think we like some of the private banks which have phenomenal setups and even though they are trading at 52 week highs, I think you really don’t know where they are going to stop because if the bull market is intact I think the private banks will continue to do well. And for the Bank Nifty itself I think you have good support around that 15300-15500 mark. So I would like to believe that the Bank Nifty will continue to lead this market higher.

Apart from this I really like the way the oil and gas index and the capital goods index have corrected. I just highlighted that these two indices saw a pretty substantial decline of 10-12 percent in July and August and now both these indices are really set for substantial upside. I think the oil and gas index has underperformed for a long time and the time has now come for this index to really take leadership once again. And if it does take leadership, it will really help the markets move substantially higher, so these three would probably be my best bets.

But if you have to look at something safe and absolutely steady, that would be the defensives because this has really become an evergreen space, it does well whether it is bad times or good times. So you want to have a substantial part of your portfolio in FMCG, healthcare and IT because even if the markets have to move to the targets that we are talking of, I think defensives will continue to do well.