FOMO driving mid smallcaps; avoid building aggressive long positions in Nifty: Nirali Shah of Samco Securities

Market Outlook

Adding long positions aggressively at these levels might not be prudent. The ideal strategy would be to wait for corrections in the fundamentally sound stocks and invest, Nirali Shah, Head of Equity Research, Samco Securities said in an interview with Moneycontrol’s Kshitij Anand.

Q) Despite volatility bulls managed to hold on to gains throughout this week pushing Nifty50 above 15900 levels. What led to the price action?

A) Both Nifty and Bank Nifty rose to a new high without any hesitation. Lack of negative triggers was the major factor driving the upmove with some help from liquidity and robust IT numbers.

Along with this, even the headline inflation data, although higher than comfort levels, showed some easing which indicated that the impact of the second wave was lesser-than-expected.

As investors put concerns around inflation behind, the markets rejoiced on positive money inflows and delivered record performance.

Q) We are inches away from hitting 16000 which has acted as a stiff resistance level for Nifty in the past. What should traders/investors be doing – add more long positions post the breakout or book some profits?

A) Bulls are running on steroids as the benchmark indices continue to log higher highs but markets consist of two types of bulls – optimistic & pessimistic.

Pessimist bulls are more cautious and lack aggression which is what we are witnessing currently. The trend which is still on the upside lacks the strength as valuations are on the higher side.

Traders can maintain a mildly bullish bias at least till markets give a decisive close above 15950. However, adding long positions aggressively at these levels might not be prudent. The ideal strategy would be to wait for corrections in the fundamentally sound stocks and invest.

Q) In line with benchmark indices, small & midcaps indices also touched fresh record highs. What is driving price action in the broader markets?

A) Mid and smallcap indices have outperformed large caps in the past year and this FOMO is driving the indices higher.

Investors with excess supply of money are looking for alternatives other than FDs for returns and the past year’s performance of these companies continues to appeal to the larger crowd thus enticing them to continue investing.

Unless there is a negative trigger, the broader markets will continue their momentum. But, once the cracks begin, these stocks will be the first ones to fall hard. Hence, investors should be prudent before entering them at higher valuations.

Q) Sectorally, Realty index surged more than 7% during the week. What is leading to the price action in that sector and top stocks which are looking attractive? If someone wants to invest in the sector should they wait for a dip or invest at current levels?

A) After a muted performance in April and May, Nifty Realty Index is back in the limelight. It recently hit a 10-year high after close to a decade of underperformance. Apart from factors like record low-interest rates and expectations of stamp duty cuts in some states, Knight Frank’s housing sales data showed a jump of 67% in housing sales from Jan to June.

Anarock also gave a rosy sales growth number in the same period. This built confidence among investors who were weary of the impact of the second wave on the real estate sector.

Despite Nifty Realty touching all-time high levels, real-estate players like DLF and Sobha Ltd were down by ~50% from their all-time high levels, indicating more room for upside. Hence, investors jumped at this opportunity to accumulate realty stocks.

Q) TCS, Infosys and Wipro have come out with their results. Which one is looking better on the charts?

A) In terms of results, Infosys and Wipro outperformed TCS in Q1. Infosys reported best quarterly results in a decade by logging in 17% constant currency growth in its revenues. Wipro too posted an impressive 35% YoY increase in profits on the back of strong demand for India’s outsourcing service providers.

Both companies beat estimates compared to TCS’s earnings and hence the Street punished TCS which underwent a mild correction in the week while the other two continue to trade close to their respective highs.

Q) Zomato done, PAYTM eyed. Are we going to see a similar frenzy from retail investors for PAYTM?

A) Paytm is expected to announce an IPO with an issue size of a whopping Rs 16,600 Cr. Now the fact that this will be India’s largest IPO to date is in itself “buzzworthy”.

Until now Coal India is the largest public issue of Rs. 15,200 Cr which India witnessed way back in 2010 but post-Paytm’s listing it will acquire this title.

Coal India’s IPO was subscribed 15.28 times hence there is a high probability that Paytm receives a decent response if not a similar frenzy. Having said that it also depends on the price band and other developments before the actual issue opens.

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