Gautam Shah of JM Morgan Stanley Financial Services says that he does not think that the markets are facing a pull back, but it is more of a short-term reversal.
He further says that cements, metals and PSU are the three sectors, which they are banking on, while in the IT, autos and capital goods sectors, he would be looking out for sell figures.
Excerpts from CNBC-TV18's exclusive interview with Gautam Shah:
What do your charts suggest now? Can we pull back a bit more?
First, I do not think it's a pull back. I think it is more of a short-term reversal. When markets were close to the target of 9,000, we were in search of a number of positive triggers, which quite surprisingly came in together.
What happened at 8,800 was a perfect textbook style selling climax. So markets have rebounded really well. The thousand-point move in the last couple of trading sessions is basically a quick damage control.
The rally from here on is going to be gradual. We will consolidate a little bit. We are doing it a bit today.
With 9,700 as a very important support level for the coming week, I won't be surprised to see the markets rally further in the couple of weeks and test the level of 10,500 at least.
Do you think it is an intermediate pullback, will the markets go back to test those levels of 9,000-8,800 or do you think the market is on its way to bottoming out, even for the intermediate term?
Absolutely. Based on the weekly charts, we still have not bottomed out and therefore, the sense I am getting, is that, in the month of July there is a fair chance of the Sensex and Nifty retesting the recent lows. At the same time, let us realise that 8,750-9,000 is a very important support level.
The next time we actually go down, the leadership is going to change. A lot of stocks, which out performed in the fall in the recent past, are now likely to crack. The leadership is going to change, but in the month of July there is a fair chance of 9,000 once again.
Your report says that the medium-term target is indecisive. How do you trade in a scenario like that, particularly on the Nifty?
When the going was good in the last week of March, we initiated our medium-term target of 9,000 and we saw that tested last week. We do not want to jump and come up with a medium-term target because after their thousand-point fall, the triggers are not very clear from a weekly chart perspective.
That is the reason, I would like to watch for the next couple of weeks and then possibly take a medium-term call because that would mean three to six month kind of a scenario.
Not so much on specific stocks, but what is your sense of how the midcap space is shaping up?
I think the midcaps could have bottomed out for the short and medium-term. As I just said, even if the index has to test 9,000 or maybe break the low of 8,800 by a very small margin, I do not see the midcap and small cap sector doing that.
So I think this is something, which I am very confident of. Sectors like midcap, small cap, banking are not likely to break the recent lows. Some of the midcap stocks look good for a 40-45 per cent return, maybe in the next one-year.
You said that next time the markets go to 9,000, again the leadership would change. Which charts look strongest to lead the market from there?
Midcaps still look good. They look the best, simply because they have reacted quite a bit, mainly because of the liquidity concerns. I guess apart from midcaps, cement is a sector, which we are banking on very strongly.
Some of the cement stocks did well late last week. Cements, metals and PSU are the three sectors, which we are banking on.
On the flip side, what looks weaker?
The technology stocks have a lot of down side and the charts are telling me that there could be something negative in the results coming out in the first or second week of July. IT looks very weak and we are still talking of a 15 per cent down side from current levels. Autos are again a sector, which has outperformed and could crack as much as 10-12 per cent in the next one month. Capital goods have completed its three-year bull run, so we have a 20-25 per cent downside even from here.
What would be a trading strategy for you right now, would you be long and use declines to accumulate till the Nifty hits its target of 3,100?
Absolutely. Any decline this week 9,450-9,700 on the Sensex and 2,800-2,850 on the Nifty, would be an excellent buying opportunity. There would be minor resistance coming in at 10,200, which a lot of market participants are looking at. So 10,200 and 3,010 on the Nifty, but above that 10,500 and 3,100 looks likely.
When you study the technicals does it look like a scratchy patch in a bullish market or is it showing you signs of a bear market now?
I still do not think so because 9,000 was a very important support level based on the monthly charts and that is the reason I was talking about this level for a very long time. Unless we have a closing below 8,800-9,000 on a closing basis, the long-term trend will remain up. I still feel that this is just a bull market correction, it has been sharp and this is the way it typically takes place.
At 10,500 if we get there, would you start booking profits or would you wait and watch the trading patterns for a few days?
I would like to wait and watch for a few trading patterns, but for IT, autos and capital goods, I would be looking out for sell figures in some of these sectors and stocks. From an index perspective, I would like to wait out for a few days before taking a call.For more on trading & markets, log on to www.moneycontrol.com
