In an interview with ETMarkets, Shah said: “Our favorite sectors based on relative strength are BFSI, Autos, Consumer Capital Goods and PSU, while the IT space would see stock-specific outperformance and would offer a favorable risk-reward proposition from a longer-term perspective.”, edited excerpts:
A volatile week for Indian markets and the bears largely remained in check. What led to the price action?
Last week was more of an index-level consolidation after a sharp 13% rise in the previous five weeks led prices to an overbought trajectory, although medium and small capitalizations have relatively outperformed and caught up with their benchmark index.
A key takeaway is that – the current rally is the strongest in magnitude in the past eight months, leading to a breakout of the declining channel signaling the end of the corrective phase.
Therefore, short-term consolidations would make a broader uptrend sounder and should not be interpreted as negative, but rather use dips as an additional buying opportunity in quality names.
What is your view on the expiry of the August series and where do you see the markets heading in the September series? How are FII placed?
We expect the Nifty50 to maintain an uptrend and gradually head towards 18,300 in September. Intermediate dips towards 16,800 should be used as an additional buying opportunity.
Overseas investors who have remained net sellers for the past eight months have turned buyers since July for around 45,000 crores, indicating improving sentiment.
Nifty recorded Gold Crossover of EMA on the daily charts in August. Do you think this lays the foundation for new records in the September series?
The golden crossover (50 day EMA crossing over 200 day EMA) implies a major shift in momentum in favor of the bulls.
However, this is not a short-term indicator but a structural improvement. Over the past decade, in eight out of 10 cases, the Nifty has generated an average return of 11% in the three to four months following crossover.
So we expect Nifty to keep the momentum going and head for new highs by the end of CY22.
Sector-wise, which sectors should remain in action (strong and weak) in the September series?
Our preferred sectors based on relative strength are BFSI, Autos, Consumer Capital Goods and PSU, while the IT space would see stock-specific outperformance and offers a favorable risk-reward proposition in a longer term perspective.
PSU as a theme is expected to outperform relatively in the coming months
The IT sector fell more than 3% in the past week. What led to the price action and do you think the weakness will continue into the September series?
Our long-term indicators suggest that the price correction in the IT space is underway and the sector is undergoing a temporal correction.
From a longer-term perspective, the sector offers a favorable risk-reward configuration to build a quality large and mid-cap portfolio. However, for the month of September, we expect some mid-cap companies to relatively outperform their large-cap counterparts.
Small and mid cap stocks bucked the trend – how should investors play the broader market theme in the September series?
Broader market indices are expected to catch up to benchmarks as the Nifty Midcap and Nifty Smallcap indices gave a breakout from an eight-month downtrend channel with a strong push across the width as measured by percentage of shares at the above 200 DMA rising sequentially from the June reading from 14% to 50% currently, suggesting broad participation that bodes well for the longevity of the uptrend.
The strength of domestic equities is well supported by a positive correlation with the US indices, which signaled the end of the correction phase with a break above the 8-month downtrend channel.
We expect major US indices such as the S&P500 and the Russell 2000 in general to extend their uptrend and domestic equities to benefit from their positive correlation.
The main actions to watch?
Preferred Large Caps: SBI,
TCS, , , , L&T, DLF, , and .
Favorite Midcaps: Canara Bank,
, , , Concor, , Action Construction, , and Indian Hotel.
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts belong to them. These do not represent the views of Economic Times)
