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Don’t Miss! Mid & smallcaps are seeing a valuation catch up: Vikas Jain

The midcap and small-cap indices have outperformed to gain by 9.7 percent and 14.3 percent respectively compared to Nifty50 to gain by 6.9 percent MTD.

June 21, 2020 / 02:56 PM IST
 
 
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Midcaps and smallcaps are seeing a valuation catch up as smart allocation of money by funds along with investments from high net worth clients in regular phases of corrective markets, Vikas Jain, Senior Research Analyst at Reliance Securities, said in an interview with Moneycontrol’s Kshitij Anand.
edited excerpts:


Q) We are back above 10,000 levels. What led to the rally on D-Street in the week gone by despite negative news related to COVID-19, Fitch downgrade, and the India-China border dispute?
A) The Nifty50 filled its gap near 9,550-9,600 levels and took support at its 20-Day average last Friday and witnessed a strong pullback with higher bottoms on the daily charts to close at a 3-month high.

Bank Nifty and NBFC's were underperforming till now with respect to AGR and interest moratorium ruling which is now being postponed to a later date, so witnessed a strong move during the week and short covering in derivatives ahead of the expiry next week led the positive momentum.


Q) What are the important levels which investors should watch out for in the coming week?
A) The geopolitical concerns could continue to keep markets jittery but the technical set up and bounce look good for a higher move to cross the recent high of 10,325 levels. Crossover of the 200-week average at 10,366 will give an extension to the up move to 10,500-10,600 levels.

With the derivatives expiry next week, we expect the markets to trade volatile with rollover movement in individual sectors and stocks and the geopolitical news flow could add more volatility.

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India VIX is trading flat holding its 200-day average and any spike above its medium-term average at 35 could increase volatility from current levels.

On the higher side, a 10,500 CE strike has the highest OI of 34.5 lacs shares while 10,000 PE strike remains strong support with OI of 39.8 lacs shares.


Q) Small & midcaps outperform benchmark indices in the week gone by. Is it the valuation that is fueling optimism in the space?
A) The midcap and smallcap indices have outperformed benchmark gaining 9.7 percent and 14.3 percent, respectively, compared to Nifty50 which rose 6.9 percent so far in June.

Midcaps and Smallcaps are seeing a valuation catch up as smart allocation of money by funds and high net worth clients being investing in regular phases of corrective markets.

The global markets are also too supportive and the results season has not witnessed any major negative surprise and trading below the average valuations provides a lot of comfort.


Q) What is your call on the telecom space after the SC AGR hearing? Banking and financial stocks saw a big boost on Thursday. What are your views?
A) We have been maintaining a positive bias on the telecom space as it is the beneficiary of being an emerging duopoly with a large subscriber base and regular price hikes, higher data consumption with respect to WFH, digital payments, OTT platforms and lesser capex requirements in the near future.

The AGR hearing is being again postponed to a future date in the middle of July which boosted the up move in telecom and banking stocks during the week and rotating to other high beta sectors like NBFC and Realty.

We remain positive but after a sharp up move over the past 3 days, one should wait for some correction to enter in high-quality franchisee backed by strong parentage and professional management who can raise money regularly to lend and grow their AUM.


Q) Your views on Dixon Technologies, GMM Pfaudler, and Adani Green. These stocks have been hitting fresh 52-week highs almost on a daily basis. What is driving the rally in these pockets?
A)


Dixon Technologies:
The stock has witnessed a breakout above its previous all-time high of 4,500 levels trading into a new range and any decline should be used to add longs as RSI is trading near 75 levels.

One can witness some correction around these levels. Traders can maintain a stop loss of 4,300 levels which is the 8-month average.


GMM Pfaudler:
It is one of the best outperforming stock that has more than doubled from its bottom of Rs 1,817 levels it tested in March 2020.

It has witnessed a pullback from its high over the past few days and one should maintain a stop loss of 3,685 levels for the long positions.


Adani Green:
The stock has witnessed a vertical up move from its 200-Day average and a crossover from its all-time high at 245 levels further strengthened the stock over the past 3 months.

We believe one should avoid the stock for fresh purchase and book partial profits at current levels as RSI is almost trading near to 97-98 levels.

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

Kshitij Anand
Kshitij Anand is the Editor Markets at Moneycontrol.

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