We recommend against putting much risk capital into small caps for the time being, but midcaps are sure to present attractive moves in April with potential for a softer rate trajectory, earnings revival underpinning sentiments, Anand James Chief Market Strategist at Geojit Financial Services said in an exclusive interview with Moneycontrol’s Kshitij Anand.
Q) Fears of Trade Wars gripped Indian markets once again and now in the first week on FY19. We did close GY18 on a strong note. Do you see the momentum continuing for Indian markets?
A) It was encouraging to see a bounce back without penetrating the psychological mark of 10,000 by much deal in FY18. The year-long correction in 2015 was similar and the first pullback lasted around 9 percent from the lows.
Interestingly, such a recovery rally, though brief, also started around April. However, Nifty is still below 200-DMA and so is almost 60 percent of the Nifty50 stocks, while around 50 percent of the exchange stocks are trading below this key moving average.
This is definitely a bearish construct, but Ichimoku clouds are firmly supporting prices so far retaining hopes of a reversal, and oscillators on the daily charts point to exhaustion in bearishness, though yet to be confirmed in weekly.
This set up thus provides for a limited upside prospect initially, aiming 10330 to 10440. Meanwhile, favoured view expects the 10,000 regions to hold for the near term, but inability clear 10440 or a direct fall below 10078 should strengthen bear fears, exposing 9200.
Q) What is your call on smallcap and midcap stocks? Should investors stay away or just book profits on rallies?
A) Small and midcaps had started correcting as early as January, though, for Nifty50 stocks, the crack became visible only from February onwards. While small and midcaps are now around 20 and 14 percent respectively below the record peaks, Nifty’s loss is only around 9.5 percent.
So, the correction in small and midcaps have been deeper and more sustained than Nifty, but such disparity is in line with the nature of the stocks in each of the segments.
We would recommend against putting much risk capital into small caps for the time being, but midcaps are sure to present attractive moves in April with the potential for a softer rate trajectory, earnings revival underpinning sentiments.
However, upcoming elections should mean that market is less likely to look much far ahead. That presents a bit of trading opportunity until there is more earnings visibility.
Q) What should be the ideal strategy of investors in April series – buy on dips or sell on rallies?
A) A good deal of last week’s visible moves came from those stocks in the F&O segment, and they should ideally see some liquidation attempts as they revisit key moving averages.
Rollovers in March were good, and at 68%, investors look reasonably assured for the continuation of ongoing reversal. Add earnings expectations to this, you have a case for positive in stock while taking a hedging position in Nifty.
To this end a bear put strategy may be employed by buying ITM puts and selling OTM puts, to be held till the middle part of April until there is more earnings visibility or 10078-10500 range in Nifty is broken. Puts are preferred over calls for this bear strategy given their better IVs, price, and volume.
Q) Top 3-5 positional call which could give handsome returns to investors in April series?
A) Disclosure: I do not hold any of the following stocks
All for short-term (less than 12 months)
PETRONET LNG Ltd: BUY| Target Rs258| Stop Loss Rs216| Return 12%
Weekly chart show prices on a gentle slope in stark contrast with violent bear swings of the index. The present correction has completed the 61.8% retracement of the March 2017 to March 2018 move and is presently seen taking support from the 2017’s breakout levels.
We believe that a flag that is forming on charts may take longer to mature, and it would be advisable to look for dips to allow the flag enough time to signal a bullish continuation, which could aim 245 to 258.
Muthoot Finance Ltd: BUY| Target Rs440| Stop Loss Rs390| Return 6%
Muthoot finance has been on a slippery slope ever since it formed a double top in November 2017, shaving nearly 30 percent from the top.
However, at 370 levels, which were found significant in both 2016 and 2017, the stock looks to have attracted enough strength to break free of the bear grip.
The break out move from the bear pattern could face an initial test of strength at 423, the weekly 20DMA, and thereafter aim 440.
Sobha Ltd: BUY| Target Rs580| Stop Loss Rs471| Return 16%
Sobha had embarked on a directional move only as recent as 2017 has gone through a multi-year consolidation. The uptrend is relatively young, which raises the potential for 2017’s breakout levels to attract buying interest and place the stock price back into the upside trajectory soon.
Last week’s falls have been quickly recouped and the close above the lower Bollinger band in weekly chart supports the positive view.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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