Shrikant Chouhan, Executive Vice President, Equity Technical Research, Kotak Securities believes that the market breadth is improving because of a strong revival in the business environment and is fuelling value buying in the market.
Chouhan, who has worked in equity & derivatives research areas for more than 24 years, expects double-digit returns from mid and smallcap stocks over the next three to six months.
In an interview to Moneycontrol’s Sunil Shankar Matkar, Chouhan says in the coming week, the Nifty should move in 17,000-and 17,600 range on the higher side. Edited excerpts:
Do you expect the market to cool before starting off on the next leg of the rally? What are the levels to watch out for in the next week?
Technically, the market is clearly over-retraced in the short term. Even a number of largecap stocks have rallied to extreme levels in just a few trading sessions. Reliance Industries, HUL, TCS and HDFC are trading at resistance levels and rallied more than 10 percent in the near term. The Nifty could come back to the levels of 17,000 where it has major support. In the worst-case scenario, 16,700 looks unbreakable. On the higher side, the Nifty would find resistance at 17,600 levels. We are expecting the market to trade in a trading range of 17,000 and 17,600 on the higher side.
IT index rallied 22 percent in the last three months, the biggest gainer among sectors. What should investors do and will the rally continue? What are the stocks to pick?
Based on long-term and medium-term charts, the IT sector is certainly going to reward investors in the medium term as well in the long run. Not only the largcap but mid and smallcap stocks are also buzzing, which shows the top down approach for the sector that yields to long-term investors. Buying on dips select IT companies at major supports would be the preferable strategy for the traders as well as investors. We like L&T Infotech, Tech Mahindra and Oracle Financial Software Services based on their technical formations.
Midcap and smallcap indices have underperformed the frontliners in the last three months. Will these indices give double-digit returns by December-end?
Midcap and Smallcap indices have also rewarded investors heavily in the last 12 months. In fact, they have outperformed heavily that generally happens in the bull market. However, based on the technical formation of these indices, there is hardly any negative reversal formation. The market breadth is improving because of strong a revival in the business environment and that’s the reason we are seeing a lot of value buying in the market. We feel midcap and smallcap stocks should reward double-digit returns in three to six months.
What are the key sectors to watch out for in the coming week?
In the coming week, again FMCG, financials and auto companies should do well. These are broad-based and diversified sectors.
Auto has been the big underperformer in the last three months. Do you think it is time to pick stocks or wait for some more correction? What could be bought in the auto space?
We need to be cautiously optimistic about the sector. The event and the news flow are highly uncertain. The theme of electric vehicles (EVs) is also on the card that will bring innovation and the number of changes in the industries. We are specifically bullish on Escorts and Bajaj Auto.
Telecom stocks have also run up sharply in the last few weeks. Do you think the momentum will continue in the coming weeks?
Yes. The industry is consolidating and it will help investors as well traders in the long run. The technical formation of Reliance Industries and Bharti Airtel looks promising.
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