D-Street Talk: Wealth creating opportunity in broader market; we have a midcap target of 27000 in next 9 months: Gautam Shah

Market Outlook

Source: Reuters

The current COVID-led decline is a great opportunity to build portfolios in the midcaps and small caps, Gautam Shah, Founder & Chief Strategist, Goldilocks Premium Research said in a D-Street Talk podcast with Moneycontrol.

edited excerpts –

Q) What a fall in the market has been fierce. So which is the ideal chart to track when trading COVID chart or the Nifty chart?

A) Well, that’s a very valid point. But, I think one needs to understand the background to really answer this question because let’s not forgot, the Nifty50 has doubled in value from March lows.

Last March, when the COVID came into play, we were at a 7,500 on the Nifty. And, we touched more than 15,000, just a couple of months back. So after a 100% move, if the market does nothing for a couple of months or a few months, it’s actually not a very bad sign. I think the market action of late has been quite well behaved.

Yes, the move recently has been a little fierce. But, I still feel that this is a well-behaved correction. If you look at the last 12 months, the COVID chart has really not helped to map the market action, because throughout last year, as COVID was resurging, you had a scenario wherein markets continued to rally.

Given the COVID resurgence, I think there is some discomfort among market participants. But, I don’t think that’s going to really impact the market beyond a point, because markets tend to discount things very fast.

This is an opportunity, and I would still want to go by the Nifty chart, which does not look too bad even at this point of time.

Q) What is your call on the banking space? If this space does not deliver, bulls might not be able to regain control?

A) Well, banking in the last six months has gone through phases of outperformance and underperformance. I think there are certain sectors that have been impacted because of the COVID resurgence and banking as well as autos clearly being right up there.

For the time being, there are no indications to suggest that banks will make an immediate comeback. However, I think they look quite oversold at this point of time having lost substantially from the highs.

The area around 30500, 30700 is very important support. Whenever banks don’t participate, the Nifty50 is not able to do anything special, and that probably is the reason why Nifty has not been able to get past 15000 in the recent past.

As things stand since banks are a little oversold, I think there are chances of a rebound. But, still, I will be looking for opportunities more in other sectors where there is more outperformance in terms of IT, pharma chemicals, and FMCG. Banks might just remain a market performer for the time being.

Q) Do you recommend catching the falling knife? Say in mid & smallcaps as well as economy facing stocks which are down on fears of a lockdown?

A) Well, opportunities at the marketplace don’t come by easily. If you actually caught the falling knife last year, you would have made a lot of money. I think that’s what we’ve seen over the last 12 months.

I would say selectively catch a falling knife and let it be quality stock. Let it be well traded, top end, the top 20 midcaps or the top 20 small caps is where one should focus on – because, I think we reached a point a month back wherein just about everything in the market has started to move. That led to a sort of a euphoric move.

I think this is a good opportunity because I do believe that over the next six to nine months — by the end of 2021, the real opportunity is in the broader markets.

The current COVID-led decline is a great opportunity to build portfolios in the midcaps and small caps. It could be through the direct route, or it could be through the mutual fund routes — I do believe that they will outperform Nifty by a very wide margin over the next nine months.

My working target for the midcap index is about 27000. So use it as an opportunity to top up. I think there isn’t much downside there.

Q) What is your call on the rupee? And you view on IT, pharma as well as commodity-linked stocks?

A) Well, I’ll be honest, I think I was a little surprised with the way the rupee behaved in the last one week. It has been trading in the range for the last couple of months, 72 on the downside and 74.5 on the upside, getting past 74.5, definitely brings up some more depreciation for the rupee, and it could depreciate all the way up to 76.40. But, I don’t think anything beyond that.

This rupee depreciation is clearly a tailwind for the IT and the pharma spaces. In any which way the local chart setup continues to be very positive.

The recent results of TCS strengthen the fact that fundamentally, all is well. So I would be very positive. These two are my best pockets for the next six to nine months.

On the Pharma Index, our working target is about 14700 — that’s a good 12% away, and on the IT index, we’re looking at 29500. If one has to outperform the Nifty, you need to have at least 30% to 35% weightage in both of these sectors going forward.

Q) The recent correction is the worst since February 26 in percentage terms. Do you think leverage is out of the system now, and your recommendations to investors who are looking at this market for the long term?

A) Yes, I think this has happened a few times in the last six months, and you should — you see these short, sharp corrections. It scares everybody.

It gets everybody off the bus, and then the market continues to move higher. I think someplace something similar could have happened early this week. And, because the market is very sensitive to these COVID numbers, it tries to discount it as fast as possible.

I do believe that a lot of the leverage is out of the system, and participants who are looking to make investments for the long term, this might be a good opportunity. If you look at the F&O data, it just tells you that the market has once again got a little light.

All of these factors do suggest that there is a wealth creation opportunity over the next 12 months. Apart from COVID, if you look at other factors, whether it’s earnings, whether it’s liquidities global markets, there are too many tailwinds for equities for the rest of this world this year.

Hopefully, once COVID subsides, which I’m sure it will, things will get back on track. Just one final point, if you look, many of the other countries in the world went through COVID second wave, and third wave.

The day their own governments announced the lockdown was when their own stock market bottomed out. So if something similar were to play out over the next couple of weeks, we might be looking at better things.

(Tune in to the podcast for more)

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