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Small & midcaps are sell on rallies; Lighten up position ahead of Budget: Rohit Srivastava

Markets always build up expectations from the budget on either economic or tax reform or measures to boost growth. Markets always over expect and therefore one should not buy on the budget news.

January 22, 2018 / 03:26 PM IST

Midcap and small cap stocks are a sell on rallies as their relative strength has been weakening in favor of large caps, Rohit Srivastava, Fund Manager – PMS, Sharekhan, said in an exclusive interview with Moneycontrol’s Kshitij Anand.

Q) It has been a roller coaster ride for the bulls in the second week of January. The index rose to fresh record highs and rose 2 percent for the week ended January 19? Do you think the momentum will continue?

A) We witnessed massive writing by option sellers in the past week. Usually, that means the markets may hold their own until expiration.

So, the momentum may continue till expiration due to the large buildup in Put options at most strike prices. However, expect profit booking to show up post-expiration.

Q) What should be the ideal strategy ahead of the Budget?

Close

A) Markets always build up expectations from the budget on either economic or tax reform or measures to boost growth. Markets always over expect and therefore, one should not buy on the budget news.

Waiting for the market to discount the news and then acting is a better strategy. Typically, lighten up on positions before the budget and wait for a day after to resume one's actions.

Q) How is the market looking on the weekly as well as monthly charts?

A) Markets always pause after 5-6 weeks of rally. So, chances are that we will pause into the Budget. Since July, the Nifty has rallied for 5-weeks in a row and then corrected.

It did so into the August top and the same pattern also repeated into the November top after a 5-week rally in the month of October. We are also in the 13th month of a rally, and 13 is a Fibonacci number, Fibonacci months are often followed by market turns as well. The right Choice of stocks/sectors has been important throughout the last year and will continue to be so.

There are many underperforming stocks and sectors even in Midcaps. I am bullish on commodities and related stocks because the commodity cycle has turned up starting last year.

The reason is the falling dollar that is driving up commodity prices. Banks and interest rate sensitive sectors appear risky given that bond yields are rising closely across global markets.

No one is paying heed to this trend but it has not become persistent and is an active risk to the market.

Q) What should be the strategy -- buy on dips or sell on rallies in the coming week?

A) I believe that specifically for Midcap and small cap stocks it is a sell on rallies as their relative strength has been weakening in favor of large caps.

In Oct-Jan we did see meaningful outperformance of midcaps over large caps but that changed in the last 10 days.

After 10-Jan-2018, we have seen midcaps fall and large caps rise. This change was quite significant and should be noted in one’s asset allocation.

Q) Top 3-5 stocks which are looking attractive at current levels based on technical?

A) Vedanta, Tata Steel, Hindalco, with a one month time horizon could hold their own if commodity prices continue to rise.
first published: Jan 22, 2018 03:26 pm

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