2 stock recommendations from Kunal Bothra for next week

"Reliance Industries is at a very critical level because it coincides with two very important supports -- the 50 DMA as well as the 200 DMA. Both these averages are supports, they lie closer to the Rs 2500 mark for Reliance Industries, which means a crack of another 25-30 points on the stock price and we could be looking at the stock confirming a breakdown on the short to medium-term charts," says Kunal Bothra, independent market expert. Edited excerpts:

You have been talking about how the markets are likely to be range bound when it comes to the near term but is there any sector that you would like to bet on?
Banking, financials and autos are the three sectors where there is a lot of momentum and stock-specific buying.

When a sector goes into a trending mode there are a lot of individual stocks which get into a breakout mode. The underperformers also try and play catch-up. So, when you look at the data over the last two weeks, its not ICICI Bank, IndusInd Bank or SBI which are actually leading the breakout, you have new candidates like Kotak Bank and HDFC Bank leading the pack, the ones which have done reasonably well earlier. Similar is the case with the financials, you do not have the usual Chola Finance and Shriram Transport which are doing extremely strong, you have the likes of M&M Finance which has seen a breakout this week. So, you have a different mix of stocks within the sectors which are doing reasonably well, and that is why it becomes very difficult to try and play with the traditional theme of momentum.

I would still look out for the indices consolidating for at least the next couple of days for the next part of the week as well. The major signs of a breakout would probably happen once the global cues start to abate and show signs of a cohesive direction. As of now, we are getting into a mixed zone where crude oil prices are abating but then you have the dollar index which is still rising higher. The US bond yields as well are signalling some caution. So, when you are in such kind of a zone it is always better to be more stock-specific rather than index specific.

Reliance is near its one-month low. Do you think that it is a make-or-break level for this particular counter? Apart from that, what do you think about the pharma pack because that sector is still underperforming?
On the first part of your question, yes Reliance Industries is at a very critical level because it coincides with two very important supports -- the 50 DMA as well as the 200 DMA. Both these averages are supports, they lie closer to the Rs 2500 mark for Reliance Industries, which means a crack of another 25-30 points on the stock price and we could be looking at the stock confirming a breakdown on the short to medium-term charts. Also, I think, what matters for the stock is over the last eight or nine months, the pace of the rally has subsided significantly. Except for that one period where the stock moved from Rs 2300 to almost on the verge of coming closer to its all-time high levels of Rs 2800 odd, there has not been any major period for Reliance Industries where the stock has seen follow-through price actions. So, this could probably be a double whammy for the stock over the near term. We will wait out for the Rs 2500 level to be taken out for Reliance Industries.

On the other hand, the Nifty pharma index has been a big underperformer and it does not come as a surprise because in the last eight months of this calendar year, the markets have clearly distinguished two sectors which have reversed significantly -- IT and pharma. If the market gets into a rally mode, these stocks and these sectors have underperformed or when the market gets into a corrective phase, these are the stocks and sectors which actually corrected much higher than the overall indices. In that regard, the pharma index as well as the Nifty IT index could underperform over the near to medium term.

What are your top bets when it comes to stocks?
I would still bet on individual midcap names or tier-2 largecap names. So, first is a buy on LIC Housing. This stock has done reasonably well this week. It closed at Rs 417-418 levels, trading above the 200-day moving average. It has seen a very phenomenal recovery over the last three months. So, the stock remains a buy, with a target of Rs 440, and a stop loss at Rs 400. Also, NCC has also been one of my picks over the last one week. I remain bullish on the stock and expect there to be a big turnaround move for NCC as well; targets remain at Rs 80 for NCC and stop loss at Rs 70.


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