Shah further says: “On the Nifty itself, our working target is about 22,300. As we get close to that number, it might make sense to take some profits off the table and maybe work with a trailing stop-loss of 21,200 or even, if somebody’s comfortable, 20,900. So while the index might not be so relevant right now, there are opportunities in a lot of sectors, banks, IT, pharma, metals, infra, power where one should focus on without looking at the index much.”
Looking at your latest report, it says a new high is quite a feat. But going by what you have put out in the report, you are talking about the Nifty Bank and IT sector batting for the bulls and therefore it becomes easy for the Nifty to rally. So given the kind of rally that we have seen at 21,700 levels, is that going to only sustain as per your analysis?
Gautam Shah: Well, when we put out the message that new highs being quite a feat, we meant after what happened last Wednesday because there was so much talk and chatter around the market fall of a single day. And this really reminds me of what happened in that 2003-2007 bull market, where we did see these knee-jerk reactions from time to time but it only helped the market set up. And the manner in which the indices have come back in the last four trading sessions, it just tells you that the bulls are still in control. Momentum is strong. The participation has been excellent. And support levels have been respected all along.
We put out that number of 20,900 based on moving average studies. And quite amazingly, the index moved up from there. Now, as things stand, things are a little euphoric. I think we have reached a phase of exuberance. And there is this feeling in the marketplace that this will continue forever. But I do believe that as we get into the month of January, be prepared for some volatility, some weakness, some correction. But I think it is going to be rotational in nature.
On the Nifty itself, our working target is about 22,300 so as we get close to that number, it might make sense to take some profits off the table and maybe work with a trailing stop-loss of 21,200 or even, if somebody’s comfortable, 20,900. So while the index might not be so relevant right now, there are opportunities in a lot of sectors, banks, IT, pharma, metals, infra, power. I think that is where one should focus on without looking at the index much.
When you say 22,300, what is the timeline of it? There is a raging debate on how January is going to pan out because historically, it has not been a great month. It has been usually negative. But for now, the momentum that we are seeing suggests something different.
Gautam Shah: Well, as you rightly pointed out, I think seasonal triggers have worked well. If you look at the track record of the last 25 years, November and December are generally positive months. And it has played out beautifully in the last seven weeks. And as we are in the last week of December, this is usually the feel-good time. This is usually the time when FIIs are on a holiday. But as we get into the month of January and with earnings and with a lot more discounting, I am pretty sure that it is going to be volatile and January is not likely to be how November and December have been.
So keeping that in mind and keeping the breadth triggers in mind, just to put a statistic, 92% of the stocks in the NSE500 are trading above the 50-day moving average. When you have such stats, it just tells you that the market is indeed very, very overbought. So while this might continue for another two, three, four days, but starting from 7-8-10 January, you will definitely see some pullback. So stay prepared.
But if you are in the right stocks in the right themes because this is a market where themes pick up. Look at what has happened to chemicals. It is a basket that has come back so strongly in the last one week and we see a big opportunity in chemicals in the next three to six months. So just stay in the right themes without really bothering about the index.What would you do in metal stocks because they have also come back with dollar index cracking, steel, aluminium everything is rallying right now very nicely? Would you back any of those ideas in the metals? How would you approach metals?
Gautam Shah: We would actually approach it very strongly. Metals have seen a sort of a pendulum or a seesaw kind of a move the whole of this year. There have been phases of strength, and then there were phases of a lot of weakness, which scared people with their performance but this comeback of the last one month looks very genuine. We have actually turned quite positive on metals. JSW Steel has been on top of our radar for a long, long time. And we particularly like Nalco. It is a stock that we recommended and we feel it can do bigger things even from the current levels.
Mind you, these are stocks which are coming out of three, six months of consolidation. For that matter, even for Steel Authority of India, what a smart move it has seen in the last two to three weeks. And there is a lot to catch up. You compare this with some other PSU names you will see that once they ended their consolidation, the move was very large. I mean, case in point being Coal India and NTPC, Power Grid, something similar might happen to a stock like SAIL.
So metals are something we are very positive on. Tata Steel also offers a great opportunity with a limited risk of about Rs 10 on the downside and upside potential of Rs 30 to 50. So that is a good 1:3 risk reward to play with in many of the metal stocks.
What about the banking index? It was a rank underperformer? In this series, it has managed to turn its head around. Do you expect this momentum to continue? And if yes, what are the constituents of it which you think will drive the rally now?
Gautam Shah: The screen always lights up when the banks do well. That is something that we have seen repeatedly in the last one year. Bank Nifty underperformance ended a month back. That is when we actually turned bearish after being cautious on it for about three months. Our working target was 48,000. We are right there. I do not think this Bank Nifty rally is going to end any time soon. We are looking at an eventual target of about 49,100 and possibly at some point of time in the first quarter of next year, even 50,000.
Why I say this is because HDFC Bank is looking solid on the charts after a long, long time. Hopefully it moves to 1800 plus in the current move. And the top public bank, which is SBI, has a phenomenal setup. In fact, it is one of our high conviction buys at these levels. You know, a couple of years back, we actually found out ITC for our clients and we spoke about Coal India. And now our high conviction bet is SBI. It can do something special in 2024 if you want to just pick one stock among the largecaps.
So given this view, banking as a space should do well and that should keep the entire market safe. You know, if the banks are strong, the Nifty is strong. If the Nifty is strong, generally the entire market is steady.