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'As the bull market develops, midcaps will start performing'

"In international markets, metals, as well as, ferrous metals are correcting heavily but metal counters in India have risen by 10-15 percent, thus creating a negative divergence for traders who want to take short positions," Mehta said.

September 30, 2019 / 12:13 PM IST
 
 
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In the first leg of a bull market, top quality frontline stocks move first; thereafter, when the bullish sentiment spreads wider and deeper, midcap and smallcap find favour from investors, Umesh Mehta, Head of Research, SAMCO Securities, said in an interview with Moneycontrol’s Sunil Matkar.

Edited excerpts:

Q) A lot of stocks including HUL, Nestle, HDFC Bank, Titan, Bajaj Finserv, Asian Paints, ICICI Bank among others, hit all-time highs during the recent rally. What kind of returns do you see next year?

A) Undoubtedly, these stocks are among the best in terms of quality, management pedigree and excellent fundamentals. Hence, they were the top picks as soon as the signs of bottoming out were visible.

However, the current valuations are stretched and investors should wait for 3-5 percent correction before investing in these stocks.

Q) After rallying over 2 percent during the week ended September 28, do you see the upside continuing this week too? Can Nifty surpass 11,700-11,800 levels?

A) We do not expect Nifty to surpass the said levels next week. Since monthly expiry is over, shorts caught on the wrong side are out, longs have already built their positions, so there seems little upside potential for the time being. We expect the market to touch 11,200-11,300 levels.

Q) Bank Nifty gained 3.5 percent during the week gone by, but its open interest was at 8-year low in September series. What is your take on it?

A) Open interest at 8-year low means that longs are not having the courage to enter at this level and weak shorts are already out of the market, thus capping the upside potential. As in either case, there is no demand at current levels. Therefore, a sharp correction is expected.

Q) On the technical front, what are your top 5 stock ideas for this week and what returns do you expect from those stocks?

A) There is a divergence in the metal sector. In international markets, metals, as well as, ferrous metals are correcting heavily but metal counters in India have risen by 10-15 percent, thus creating a negative divergence for traders who want to take short positions. Vedanta, Tata Steel, Hindalco, SAIL, NMDC are all good candidates to go short from a medium-term perspective.

Q) Nifty IT and Pharma underperformed the benchmark this week; do you expect a strong revival this week?

A) Despite underperforming benchmark indices notably, Nifty IT, especially in the last 3 months, have shown signs of corrections. There is further potential to correct, given that valuation is still slightly at higher levels.

Pharma companies are still embroiled in USFDA observations, given that the US is entering election years such USFDA diktats are likely to keep pharma sector under pressure. Trump administration's stance of "America First" will create headwinds for the Indian Pharma sector.

Q) Despite the strong rally, midcaps failed to outperform frontliners. Do you think the tide will reverse during the remainder of FY20?

A) Generally, in the first leg of a bull market, top quality frontline stocks move first; thereafter, when the bullish sentiment spreads wider and deeper, midcap and smallcap find favour from investors, given that risk appetite by that time is increased and the large-cap stocks are pricier. As and when the bull market develops, the midcap shares will perform.

Disclaimer: The views and investment tips expressed by the investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Sunil Matkar
first published: Sep 30, 2019 12:13 pm

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