2023 to be a challenging year for market; banks no longer a place to hide: Gautam Shah

"Global markets are not in the best space. Gold and silver are suddenly doing very-very well so I think once 17,800 breaks on a closing basis which I think could happen eventually you could see a large dip of about 5-7, maybe even 10% decline," says Gautam Shah, Founder & Chief Strategust, Goldilocks Premium Research.

Shah further says that it has been the banks that have been holding the market and with the move of the last two days and if the Bank Nifty were to break the 42,000, 42,500 support, it could see a much larger dip.

It is quite a tug of war between the bulls and bears, who is going to win?
Well I think you described it very well, it is a tug of war between the bulls and the bears. The last one week has been a little uncomfortable for me because as a chartist and a technical analyst when I look at the evidence on the table I just get the feeling that 2023 is going to be a challenging year for the markets. I think what has happened in the last four to six weeks is a sort of a transition phase from an uptrend to a downtrend and I think the kind of price action that we have seen in the last couple of weeks it just tells me that the bears are taking control by the day. So we do not have any positive triggers at this point and I think the manner in which the Nifty has come back to levels of 18,000 just suggests that the entire market set up is weakening, the leadership is gone, the momentum on the upside has just not been there. The pullback that took place from 17,800 to 18,250 looks very fragile.

Global markets are not in the best space. Gold and silver are suddenly doing very-very well so I think once 17,800 breaks on a closing basis which I think could happen eventually you could see a large dip of about 5-7, maybe even 10% decline. So these are times for capital protection, these are the times to be slightly conservative and I think there are just too many stocks and too many sectors which seem to be headed lower. So unfortunately for the first time in a year we do not have a positive view on the markets.

Let us talk about one of the largest composites then, banks and financials at large let me put it that way. Given the breakdown that you had in Bajaj Finance and Finserv yesterday, news based move regardless and then, of course, the kind of dichotomy that you have seen throughout the year within what ICICI Bank and SBI have done, what an HDFC Bank and Kotak have done and then the sort of emergence of IndusInd Bank and Axis. Help us understand what the big boys from within the financials are going to do next.
The Bank Nifty has really led this entire market higher in the last one year. I think it has been the poster boy, it has been the Pied Piper, it has been the reason why the Nifty scaled to levels as high as 18,900 but I just feel that all positives are now in the price.

So all of these top performing banking stocks like an ICICI or SBI or an Axis or an IndusInd have been going through a sort of distribution phase in the last one, one-and-a-half month and the Bank Nifty itself, the fact that it refused to get pass that important resistance of 43,500 a couple of days back is an indication that even this index is ready to fall.

Any which way all other sectors are already weak, apart from metals. If you look at the IT pack, look at Reliance, the consumer durable space, the FMCG space, they are all very weak.

It is just banks that was holding the market and with this move of the last two days and if the Bank Nifty were to break the 42,000, 42,500 support I think it could see a much larger dip.

In fact, just yesterday we gave a sell call on some of the top banks and we feel that the trending move has already started so banks are not a place to hide. I think the only two places to hide at this point of time is capital goods and possibly PSU, PSE as a basket. So these two places look okay and maybe pharma which I am expecting to run up at some point of time but most other sectors in the market are weak at this point.

You pointed out metals, now metals A) is high beta. For metals to do well the economic trajectory has to be different, the landscape has to be different. So at a time when your overall view is bearish, your view on metal is quite constructive that is rarity is not it?
It is. We are trying to answer this question ourselves in the last seven days when we speak to clients because metals are known to be high beta as you rightly said. They are seasonal. I do not see this as a structural rally. It is just that the metals index is one of the few indices which is at lifetime highs as the Nifty has come off about 1000 points from the recent highs.

So it could be seasonal, it could be just temporary over the next two to three weeks but I am definitely not saying to hide in metals. I am just saying that for the short term there could be some momentum and there are some stocks that could stand out like JSW Steel or a Tata Steel but I would not really go beyond looking at more than a few weeks. So as I said it is more seasonal, I think if the Nifty were to break 17,800 at any point of time even metals would come under pressure.

Divide the market in three compartments. Compartment number one, book profits; compartment number two, hold; compartment number three, short. Rather than doing a sectoral classification let us do a strategy wise compartment. So compartment number one, book profits, what qualifies here?
I think a lot of stocks qualifies here. I think all those stocks which were the poster boys of the last two years and which gave stellar returns we are recommending clients to take profits there. Even if you miss the bus a little and even if our view is wrong it is okay to come back higher because we need the Nifty to get past 18,300 for any sort of positivity but the way we see the Indian markets, I think we are strongly recommending profit booking and we are recommending shorts very selectively.

Also, stocks like Bajaj Finance, Bajaj Finserv, Trent, ICICI Bank, Naukri and Grasim are setting up on the short side and every passing day more and more stocks are fitting the bill.

So as I said hold is something which I would recommend in very selective midcaps and smallcaps which have already seen so much downside in the last one year. There is not much scope but the way I see it is basically top quality and companies with very richly valued companies are the ones that could come under pressure.

Will IT be an avoid or at some point in time you would say that look it was a damaging 2022, at some point in time it becomes a contra buy? How far are we away from IT becoming a contra buy/in oversold zone?
I want to be optimistic on IT but the problem is the kind of global headwinds that we are living in, the kind of dynamic world that we are living in I just feel that even IT might just crumble because you cannot have the Nifty falling say 5%, 7%, 10% and IT holding out at these levels. So for me 28000 is clearly the line in the sand for the IT index if that breaks there could be some more downside. But still on a relative basis because most of these IT stocks have already been down 40-50% from their October 21 highs, I do not see significant downside in them. So if you really want to park your money in steady stocks where you will not get washed away, I think that would be Infosys and TCS but midcap IT should be an avoid apart from a couple of names like may be a Persistent or a Coforge.

Midcap IT can be looked at and I just want to stretch that point forward you are talking about. Right now your view on the index being that if we break 17800 there is more downside in store 5% to 10% so in that light then would it make more sense to look at select stocks within the mid and the small caps and if so what would that be?
It has been quite a disconnect in the last four days because markets have come off, the screen has not looked good on the large caps but the midcaps and small caps have held out quite well. If you look at the breadth data already so many midcaps and small caps are languishing at 52-week lows, it is just the quality midcaps and small caps which have been holding out in the recent past. But if you were to see a trending fall over the next few weeks to few months then I do not think midcaps and small caps are going to stand out. So what we are doing at Goldilocks is we are recommending people to stay with the industry leaders whether it is large caps, midcaps or small caps as that is how your portfolio is going to be protected.

For example if you are looking at the unlock trade in the midcap space I would rather be with an Indian Hotels than a Lemon Tree. That is how we are positioning ourselves and we also want to be in value. We want to be in the PSU space, the PFCs and the REC and the ONGCs of the world where we know that the downside is just not there. The dividend yield angle kicks in and it is under owned so I think that is the kind of space that we like for the next few months at least.


If 18400 that congestion zone is conquered and are we looking at 19000, 19000 plus because the stiff resistance of 18000 is not like a distance away it could be a one week’s work?
I know and that is a reason I said that the last two weeks was a transition phase now it seems as if this transition phase will turn on the downside. But we will just have to wait and watch. My numbers are very clear if the Nifty gets past 18300 I will change my stance. I will review the market differently and we will come back in with all the aggression that we had on the bullish side over the last 15 to 18 months. But it is just the evidence on the table that does not allow me the fact that the markets are trading below the moving averages, the Dow is precariously placed just above 32500. Global markets are not in a great shape at this point of time so yes above 18300 we will come back in but as I said the evidence hints at a breakdown below 17800 eventually.

Now slightly medium to long term questions for 2023 do you think more money would be made by going long or by going short?
Mix of both. It has just been buy and hold quite easily for the last couple of years to be honest whether it is large caps or midcaps but 2023 I think might just be all over the place because you are going to see moves of say 1000-1500 points quickly and then also rallies of that magnitude.

So I think it is going to be more of a trading market and if I have to give you a big range then it would be 16000 on the downside and 18500 on the upside.

I know it is too early in the year but that is what it looks like. The bigger opportunity as I see and we have recommended at Goldilocks is gold and silver. I think precious metals could really rule 2023 and I would not be surprised if both these commodities go on to hit new lifetime highs.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)