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Nifty entering another bull phase, broader indices likely to gain 40%: Elara Capital

March 13
15:28 2019

The rally in mid and smallcaps is likely to have more legs. Their outperformance is likely to be more in patches than a sustained affair. While I will not hesitate to look for an upside of even 40 percent for the broader indices, I will avoid big calls on the individual stock names here, Biju Samuel, Senior Vice President, Elara Capital said in an interview to Moneycontrol’s Sunil Shankar Matkar.

Edited excerpt:

Q: Nifty50 has been rallying since February 19 and crossed its critical resistance of 11,250 also. Do you expect the rally to continue?

A: This is a broader market inflexion. Broader market is likely to outperform/lead the uptrend. Also it is broader at the global level too. We were into a cycle of polarisation globally and locally. This is now being resolved.

The current turnaround in the market is accompanied by big inflexion signs which gives good visibility of a durable uptrend. So one should deploy money and ride this uptrend as it is long term in nature.

One may have to chase this uptrend than wait for your price as large number of individual stocks have shown breakout from bear trends. After such expansion in breakouts, rallies generally gain further momentum than exhaust. So the answer is yes, the rally will continue.

Q: In a recent report, you said two signals Breadth Thrust and the Breakout Thrust triggered last week. Does it mean the Nifty is in strong bull phase?

A: The Breadth Thrust is a dramatic shift in market breadth. This generally happens closer to or at the beginning of durable uptrends. The Breakout Thrust is when more than half the stocks show key breakouts simultaneously.

The combination of both is an elevated bullish alert. Yes, it suggests we are entering another bull phase which was last topped at the January 2018 highs.

Q: Bank Nifty crosses its record closing high on Tuesday. Do you expect more upside in the index and will it be a leading driver for the market?

A: At this point of time, we have a big answer that a large uptrend is evolving here. Right at this point of time, we don’t have many other answers especially on the stock/sectoral composition. Risk appetite is coming back in the market.

When risk appetite waned last year, Nifty was propelled by large concentration in high quality and low beta. This dominance of quality and low beta will change now. Broader market deterioration with the Nifty has bottomed.

We will see wider universes like Nifty500 outperforming the Nifty. I don’t have a confident sense whether Bank Nifty will outperform.

Q: Nifty Midcap and Smallcap indices gave fabulous returns in last three weeks, in fact more than frontliners. Do you feel the rally has more legs?

A: The rally in mid and smallcaps is likely to have more legs but soon there will be a separation of the men from the boys. Their outperformance is likely to be more in patches than a sustained affair.

The situation might be similar to what we have seen during mid-2006 when midcaps, small caps started reviving after a meltdown. But large number of stocks could only partially retrace their previous losses.

The ‘market internals’ framework has advantage in identifying bullish inflexion points in the broader market than individual stocks; especially the beginning of large rallies. While I will not hesitate to look for an upside of even 40 percent for the broader indices, I will avoid big calls on the individual stock names here.

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