If Budget expectations aren’t met, short-term correction is likely: Umesh Mehta of Samco Group

Market Outlook
Umesh Mehta

Umesh Mehta

Samco Group’s research head Umesh Mehta sees volatility rising over the next few days, with the tug-of-war between the bulls and the bears expected to continue. The bears might be the winners eventually, given the overbought nature of many stocks and the high expectations from the Union Budget 2021 that is to be presented on February 1, he says.

In an interview with Moneycontrol’s Kshitij Anand, Mehta, who has more than 20 years of experience in the capital market, says if budget expectations aren’t met, there could be a short-term correction. Edited excerpts:

Q) A historic week for Indian markets as the Sensex scaled 50,000 but profit-booking at higher levels pushed the market down towards the close. What led to the price action–is it profit-taking or something is worrying investors?

A) The Sensex ended up crossing the monumental milestone of 50,000 but could not sustain those levels. While the rise was a seemingly bullish indication, a pullback came from investors looking to book profits from the rally to take a breather.

Markets cheered the smooth transition of the US president and the encouraging Q3 performance which has beaten expectations. Fundamentals seem to be catching up with the stock prices and the quarterly performance of India Inc is exactly depicting that.

Minor corrections would be profit booking moves in this secular bull run, which is somewhere between Phase I and Phase II in the Dow Theory.

Hence, the cautiousness of market participants should not be misjudged and as an investor, you should continue to book profits in poor quality stocks, while shuffling your portfolio towards capital-intensive sectors on dips that could benefit from the rising inflation.

Q) Which are the important levels to track in the January F&O expiry week and ahead of the budget?

A) The Nifty50 is trading at overbought levels, with the market struggling to hold on to the current levels. Nevertheless, the Nifty continues to be in a bullish trend and is expected to continue with this trend unless it breaks the support level of Nifty 14,200.

A break below this level can also lead to a swath of investors who will look to book profits and can push the index as low as 13,100 levels. Hence, we believe that traders should tread cautiously from hereon.

Q) Tata Motors has rallied by about 60 percent in January. What is fuelling the rally? Are investors considering Tata Motors to be India’s Tesla?

A) Tata Motors has zoomed at full speed over the past trading sessions. The first trigger came from better-than-expected sales numbers from the Jaguar Land Rover (JLR) division, which saw a strong demand coming from China for the quarter.

Another major boost came from the news stating that Tesla will be seeking a partnership with Tata in setting up their India operations.With Tesla being synonymous with next-gen EVs, a partnership can significantly improve Tata Motors’ prospects multi-fold and this drove investors to jump into the stock.

While nothing has been confirmed by either Tata or Tesla, investors are willing to place their confidence and bets with hopes of benefitting from this association if it comes to fruition.

Q) Small and midcaps witnessed some profit-taking. Do you think bulls would be able to take control in the run-up to Budget?

A) Broader markets experienced profit booking by the close of the week along with larger indices. While the results have been supportive so far, the overall sentiment is to wait-and-watch as the budget is about to be the key trigger to assess the future direction of bourses in the short term.

Volatility is expected to remain high as bulls and bears continue to play tug-of-war but in the end, bears might win given the overbought nature of many stocks and the high expectations from the Budget. If expectations aren’t met then there could be a short-term correction.

Q) What should be the investment/trading strategy of investors ahead of the big event?

With the budget date nearing, markets have gotten cautious and have shed some of its gains this week. Investors should look at this as an opportune time to assess companies and invest on dips in quality stocks.

 Traders can go light on the long side. With the budget touted to be in favour of infrastructure development and focus on stimulating economic activity further, Infra, Realty, and Banks would be sectors that will be watched by investors for new opportunities.

Q) What are your top investment ideas?

A) As the government looks to boost productive spending, the budget is expected to fuel economic productivity, job growth, and support those who were hit by the pandemic the hardest.

With these themes in mind, infra and realty are expected to see some much-needed support from the government in the form of favourable policies and lower taxes.

To ensure cheaper credit, the budget will also aim to give support to banks to promote them to continue lending, which will thereby support both industries and individuals to recover strongly.

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