Sacchitanand Uttekar, who has about 14 years of enriching experience in analysing Indian capital markets, is of the view that the success of recent IPOs indicated that there is an appetite for quality mid and smallcap stocks.
Uttekar presently is DVP – Technical (Equity) at Tradebulls Securities.
We may continue to see the festive cheer led to action in quality mid/smallcap stocks to get carried forward into Diwali & Christmas festivals as well, he said in an interview with Moneycontrol’s Kshitij Anand.
Q) A week which was controlled by bulls as Nifty managed to climb above 11900 levels. What led to the price action on D-Street?
A) The Nifty50 did register a decent weekly gain of 1.43 percent but if we dissect the days individually the jump in volatility kept traders constantly over the edge, which was evident throughout the week.
Despite the global news flows with regards to fresh lockdown guidelines in central Europe, and the ongoing US election campaign debates, our indices managed to hold above their respective 5-Days EMA despite the intraday slippage.
The jump in global VIX is quite normal as the US elections are around the corner while our reaction towards the global news flows could be short-lived as the recovery rate statistics have been much better in India as compared to the globe.
The core strength was witnessed in rate sensitives, and core industrial sectors like Banks, Autos, Realty & Infra along with metals that absorbed the shocks due to profit booking pressure from other leading sectors which helped retain growth during the last 6 months of uncertainty.
Q) As we approach last week of October which is also the expiry week — which are the important levels that one should be tracking? Any important event to watch out for in the coming week?
A) Technically, for Nifty50, 12065 holds the key for fresh bullish momentum to unlock its move towards 12416 with a minor hurdle around 12140 while any close below 11,580 could dampen the sentiment.
The baton still remains with the Banknifty as it ended the week with a strong gain of 4 percent, and a further decisive breach above the 25,000 mark during the week would open the gates for a further strong rally towards 26,340.
The scorecard of the ongoing quarterly numbers has been good so far as most of the companies have registered a beat above their estimates.
The spotlight could be on index giants like Kotak Bank, Reliance Industries, and ITC which would be posting their results soon. The domestic market would be keeping a close eye on the developments ahead of the Bihar state elections.
On the global frontier, one of the key events to watch out for would be the US Covid stimulus package assurance or announcement. During the week gone by, the entire global market was anticipating a deal between Democrat and Republicans before the upcoming US presidential election on Nov 3.
If the package is declared we might see more run-up, however, if the deal fails then we might see some profit booking. Markets will also be watching for COVID numbers across the globe as we are approaching winter and it is likely that globally more numbers may prop up.
Market may not like any announcement of further restrictions by other countries due to rising infection cases as we saw how the market witnessed rapid profit booking led pressure after UK and France declared restrictions at night as a quick measure.
Q) Even though benchmark indices moved in a range we saw bigger price action in small & midcaps. What are your views on the broader market? Small & Madcaps have usually performed better in the run-up to Diwali and in the December quarter?
A) Both Nifty Midcap-100 & Nifty SmallCap-100 had been oscillating within a tight range for the last 6-8 weeks. Even in the last one month, broader market had underperformed compared to the front liners.
Now mid-cap and small-cap stocks are catching up as economic recovery is progressing well as evident by their quarterly numbers.
Both the indices are on a verge of breaking out above their respective ongoing contracting range which could result into an immediate catch up in their relative performance.The Nifty SmallCap100 has registered a close above its 200-Weeks EMA zone while Nifty Midcap is at the threshold level of confirming a breakout which would also confirm the activation of the ‘Bullish Pennant’ formation which has been evolving on its weekly scale.
Compared to front liners, mid-cap and small-cap are reasonably valued and offer good upside potential.
The success of recent IPOs indicated that there is an appetite for quality mid and small-cap stocks and we may continue to see the festive cheer-led action in quality mid/small-cap stocks to get carried forward into Diwali & Christmas festivals as well.
Q) Sectors like Realty, Telecom, and Metal led the action on D-Street. What were the factors which led to the price action?
A) Sector rotation within the market has been healthy as we recently witnessed the leadership baton taken over from Pharma & IT to Banks & Autos.
Now other rate-sensitive sectors & core industrial led sectors like realty, Infra etc which had been underperforming have started to perform on the back of expectation of economic recovery and anticipation of demand due to upcoming festivity.
Cyclicals like Metals & Cement have been performing well in the near term & could continue to do so in the coming weeks as well due to their quarterly performance report card & global demand getting back on track. Metals are reacting to global commodity prices.
If we look at base metals, prices have increased on the back of a recovery in China. China has started hoarding metals due to the uncertainty of the US presidential election while supply-side constraints is being seen due to rising covid cases.
Overall, what we are seeing is a strong liquidity rotation from over ownership sectors to under ownership sectors.
Telecom sector might have seen bottoming out as far as low ARPUs are concerned. The street is expecting better numbers this quarter compared to last year as a focus has shifted from low-value pack to content-driven pack offered by all the key players.
The announcement of successful tests of 5G technology by Reliance Jio with Qualcomm would certainly boost the sentiments further as the plans of ‘Homegrown 5G’ were first announced by Jio during the Reliance Industries AGM 2020.
We may see a fresh fervour by all the telecom players to enable & establish their 5G services at the earliest to tap the first move advantage.
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