Why do not we begin by discussing the auto sector itself. Of course, fundamentally, there is a lot of things at play right from rural recovery, CV upcycle to that entire IPO is coming in from the likes of Hyundai as well as Ola, but on the charts is there any recommendation to be made here?
Yes, I think you are right, the momentum in the auto sector is pretty good. I have been tracking the two-wheeler stocks which have been pretty much outperforming within the segment. But I am looking at also the four-wheelers joining in. So, of course, that like the couple of names in that area are, of course, TVS Motor, Hero MotoCorp, they have been doing pretty well. Maruti started to pick up, I think somewhere that has to also join into the whole move and so that is what is really happening. I think the auto sector would get an additional trigger when bond yields actually start falling because these are interest rate sensitive sectors and I think we are on the cusp of a reversal on the interest rate trend also, so that is why I think there will be additional triggers for the auto sector pretty much across the segments. So, it should remain a strong sector for the months to come.
But what about the strength in the index itself? We have been hitting fresh record highs. Is this a momentum you expect to sustain or is it going to be sideways, a bout of profit booking ahead of budget, what is the expectation and how should one play the market, let us say, for the next one, one-and-a-half months?
If we only talk about the Nifty, I would have liked to see some kind of a consolidation or rather pullback at this point after this four-five-day one-sided move post the election results. But we are actually not seeing that. In the meantime, the VIX has come down sub-15, so that brings back some comfort. It was at almost 30 before the election results which is very high to really play the market, now that it is back to a 14.5 kind of reading.
If it does drop even to 13, 12, whatever, this is a comfort zone now. Once you have sub-15, it is manageable volatility when it comes to trades, putting your stop loss.
So, I think that sets us up for a potential continued move to the upside. But I do think it can remain. See, till we really significantly surpass say 23,600, we can remain in a consolidation mode ahead of the budget.
But if we do get past that range, then it would look like a budget rally and even if you do pull back a lot, I would look at buying the dip and even from there you can start off on a rally of expectations into the budget, so that is the set of possibilities, which means that the downside is limited.
We just do not know whether time or price-wise how much that is going to be, but eventually we are going to be headed higher and that is something to be prepared for.
In fact, there could be a lot of stock specific movements to really watch out for, event to event like, for example, tonight we have the FOMC meeting which is going to speak on rates and so again that brings us back to rate sensitive.
It also focuses a little bit on the commodity sector because US rates directly have an impact on the US dollar. We have already seen a short-term correction in commodity prices globally and if they do start picking up post the FOMC meeting, then that brings the focus back to the metal stocks. So, those are some of things to watch out for.
So, Nifty downside, I would say probably not below 22,800 right now is what we would think, eventually head well above 24,000, the only thing is, yes, from here to the budget will be consolidate before making that move. Slightly tough call. We will have to take it on a day to day basis and look at the opportunities in between.