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What to do after record highs? Book profits in midcaps, high beta names: Sacchitanand Uttekar

Despite the recent uptick in global volatility, the Nifty midcap and smallcap have continued to maintain their outperformance as compared to largecap names which saw some good comebacks during the final legs of the May series.

May 29, 2021 / 03:54 PM IST
Sacchitanand Uttekar, DVP – Technical (Equity), Tradebulls Securities

Sacchitanand Uttekar, DVP – Technical (Equity), Tradebulls Securities

 
 
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With such diverging trends in indices, and rapid sector rotation action, it is ideal to book profits from mid-caps, and high beta names, Sacchitanand Uttekar, DVP – Technical (Equity), Tradebulls Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Q: Bulls remain in control of D-Street in May unlike ‘sell in May and go away’. We hit a fresh record highs as we enter the June series. What led to the price action in the week gone by?

A: At the beginning of the May series COVID cases in India were nearing their peak, and as the series progressed we saw a gradual declining trend in them as many states one after the other maintained strict protocols on lockdowns. Even globally, other economies were in process of re-opening on the back of good recovery rates, and declining fresh COVID infection numbers due to upscaling of vaccination drives.

Only in cases like India and Brazil where the second wave was rising, and their respective governments were encountering initial hiccups for counter-attacking the rapid increase in infections. So, global markets were already performing and our market was tallying along with it and perhaps slightly underperforming.

Off late we have started outperforming global peers as our cases have seen a declining trend and investors are hoping for ease in restrictions and curbs by individual state governments.

In the week gone by, the union government also declared more fiscal stimulus support for farmers and sectors hit by the second wave. On the other hand, the result season has been progressing well & complementing the positive undercurrent.

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All these factors have led to a strong rally in the month of May as we see our Nifty recording fresh life highs along with Nifty Midcap 100 & other indices confirming a broad-based participation led rally.

Q: Small & Midcaps outperform – will they still lead the rally as Sensex, Nifty enter uncharted territory?

A: Mid and small caps are now beginning to outrun front-liners as investors buy into bottoms-up investment ideas. Despite the recent uptick in global volatility, the Nifty midcap and small-cap have continued to maintain their outperformance as compared to large-cap names which saw some good comebacks during the final legs of the May series.

Balance sheets of midcap and small-cap companies are typically more leveraged compared to their large-cap counterparts. Therefore, their profitability is magnified in a low-interest rate environment.

Now with economic recovery expected to bounce back due to slowdown in cases, selective midcap and small-cap companies with better financial records are expected to benefit further as compared to the rest.

Technically, the Nifty Midcap100 has hit the red hot overbought zone where its weekly scale is displaying a ‘Three-Point Negative Divergence on its RSI to Price’ which is a sign of lack of incremental strength & exhaustion.

In such instances, the upticks remain short-lived while the throwbacks are intense. Hence, it is ideal to remain very selective while pursuing further alpha within this space, and avoid leverage longs from hereon.

Q: Sectorally, IT, Realty index was up nearly 4 percent (Till Thursday closing). What is fuelling the rally in IT and Realty stocks? Telecom and Metal have seen some profit-taking in the week gone by down over 1 percent.

A: Sector rotation was evident during this week as the rally from pharma saw a shift towards Realty and IT while metals continued to cool off, and banks extended their support towards the bullish move.

Although pharma stocks still have investor’s attention, valuations in the realty sector have caught the eyes of investors.

Worldwide demand for residential complexes has gone up and with ease in COVID-19 cases, investors are hoping that buyers would return to the market for residential and commercial space.

The residential sector is already showing signs of brisk growth over pre-pandemic levels while commercial space is struggling due to lockdown and restrictions. Attractive valuations seem to have fuelled the rally in the Realty index.

The IT sector rally seems based purely on expectations that the Indian IT companies are likely to grow at a faster pace in 2021-22 because businesses across the world continue to leverage more on digital transformation.

Q: What is your outlook on markets post record highs? What should be the strategy – should one book profits as indices touch record highs or hold for more gains?

A: Seasonality factor score for the month of June has been relatively tepid as most of the past trends where April and May's months remain strong, the performance saw cool off in momentum.

Hence, even though the current price trend is nearing its target zone, we are expecting some cool off/corrections underway during the series.

The NiftyMid100 which was the flag bearer for the rally since April is displaying a ‘Three Point Divergence on its Weekly RSI’ which is a sign of lack of incremental strength & exhaustion.

Banknifty saw a good comeback along with IT which remains stable. The pain in metals may result in a gain for the Auto stocks which depend on their raw materials from this sector.

The baton now seems to be passed on to the traditional largecap names which could stabilize the trend going forward.

With such diverging trends in indices, and rapid sector rotation action, it is ideal to book profits from mid-caps, and high beta names while conviction continues to rely on largecap traditional stocks along with specific unlock theme-based opportunities while the index remains upbeat above the 15,000 mark.

Q: Taking cues from May expiry – how do you see June series panning out. What is the kind of levels you foresee for Nifty?

A: May series ended on a high note with Nifty adding another +443 points to its ongoing tally from the April series. Rollovers were significantly higher for NiftyBank which stood at 81 percent v/s Nifty which registered a decent uptick at 77 percent above its 3 months avg. of 75.4 percent.

On the other hand, the gradual cooling off of volatility saw the biggest drop on the final day of the week as India VIX fell by 12.5 percent in a single day registering it as the biggest single day decline on YTD basis since November 25, 2020.

Option band at the beginning of the series indicates a broad range of 16,000-15,000 along with an intermediate range of 15,500-15,300.

Technically the index has been progressing well towards the expected channel pattern target of 15,600 with its daily RSI at 66 & weekly RSI 66 respectively complimenting further room on the upside.

Hence, for the series, the up move above 15,600 towards 16,040 could be challenging while 15,300-15,000 are expected to remain key pivotal support zones.

Q: Your three-five stocks for investors for the June series?

A: Here is a list of top trading ideas for the June series:

Coal India: Buy | LTP: Rs 146 | Target: Rs 162 | Stop Loss: Rs 137 | Upside 11 percent 

The stock formed a bullish pennant formation on a daily scale. We could see some momentum once it closes above the breakout zone of 150.

On the daily scale, it saw a ‘One White Soldier’ candlestick formation, and a close above its five-day EMA points towards a possibility of a breakout as soon as the stock trends well above its 200-days EMA placed around 139.


Indigo: Buy | LTP: Rs 1,776 | Buy on dips up to Rs 1 745 | Stop Loss: Rs 1 670 | Target: Rs 1,880| Upside 6 percent

Despite the lockdown mode since the past 5 months, the stock has remained resilient & maintained itself within the range of 1,600-1,750.It never closed below its five-month EMA which is now placed around 1630. On absolute price scale, the latest breakout from its five-month consolidation with a positive crossover on its weekly RSI above 50 suggests that the upside is likely to continue. The monthly ADX swiftly moving above 28 is a sign of fresh momentum. On the monthly scale, the ongoing bullish pennant (continuation pattern) formation looks mature for a breakout




The recent reversal from the lower end of its weekly range helped the stock to register a ‘Piercing Line’ formation on its monthly scale.

The pattern also registered a close above its 5 & 20 months EMA for the second time in the last 6 months. With its weekly RSI already exhibiting a positive crossover above 50 zone, and the monthly RSI hovering around 49, it is likely that the stock may witness a much-awaited relief rally during the current series.

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.
Kshitij Anand is the Editor Markets at Moneycontrol.

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