/Nifty is going to be irrelevant, real opportunities are outside the index: Gautam Shah

Nifty is going to be irrelevant, real opportunities are outside the index: Gautam Shah

The Founder & Chief Strategist of Goldilocks Premium says 10,850 is the level where one can continue to trade holding a trailing stop loss.

There have been bouts of volatility and attempts by bears to get in. Do you think they would likely be successful or is this one-way rally likely to continue unabated?
It has been a fabulous run in the markets if you ignore the news flow around the economy, Covid, geopolitical factors, global volatility or what has happened to precious metals. This has really been a textbook style uptrend with shallow corrections continuously making higher tops and higher bottoms and leadership from a number of sectors, the India VIX correcting and all these factors just tells you that the market set up is quite strong and the fact that you keep seeing these corrections from time to time has just not allowed the market to turnover bought. So, while you might be at 11200 index, if you look at the technical studies, they are not clearly overbought because the market has adjusted itself beautifully.

Also, what is very interesting to note is that this recovery has broken all stereotypes of the last five years you. Every time, the indices did well, we always looked to banking, consumption names, top FMCG stocks. They have all taken the backseat and so clearly this is a very unique, very rare kind of a bull move that is led by pharma, led by IT and metals.

This is going to continue for the next few weeks. Nifty is going to be irrelevant because it could face resistance around 11,350 and it could extend up to 11,600 which has been our working view. But the action outside the index is where the real opportunities are and on the downside till the index is above 10850. All is well and that is the level where one can continue to trade holding a trailing stop loss.

What is the view on some of those large cap banks?
Banks have been a big, big laggard. That is a surprise for a lot of people because many money managers, many HNI portfolios are allying towards banks in the last six years. Every time Nifty has done well, it was always led by the banks and therefore clearly there is a sort of a discomfort in the market because the top three names ICICI, SBI, Kotak — none of them have really done anything special. In fact, most world markets including the indices have replaced almost 70% of the March lows and the Bank Nifty is not even able to do 35-40%.

This trend is going to continue for the rest of this year and the point which I have been making to our subscribers is that this is a banking free bull market. The opportunity is going to remain elsewhere and the Bank Nifty will not fall. It is just going to remain in a range, it is going to buy time and it is not going to do anything special. You need to be underweight on the banks going into the next few months and overweight into some of the other sectors which witnessed substantial damage in the last two years.

Let us talk about some of the other pockets of the market. The current environment has been all about pharma. Do you continue to see action there?
Yes, pharma has really led this entire bull run from the March lows. Every time we have spoken on your channel, we have spoken about pharma being our top pick and that has been validated with the kind of move that we have seen in the last two weeks. This is going to get better, it is going to spread out and you are seeing a lot of underperformers making a comeback like Sun Pharma which was languishing in a band for almost three months. On the index itself, our target has been about 12,000. That is a good 6% away from where we are right now. But the eventual target could be as high as 13,200. This is a theme which will not get away easily.

A lot of people are saying that it has gone up so much that there is room to correct but the point is all those money which was stuck in some of the other sectors is now coming into pharma, chasing outperformance, chasing alpha and that is probably the reason it will do well. Pharma is coming out of a two and a half year bear market.

Clearly the scope for recovery is large but MNC pharma is something that we do not like. It has been the poster boy for the last five-six years and many have been compounders. But now the focus is shifting to the local companies which should offer greater upside going forward.

What about cyclicals? Do you see an opportunity in utilities?
I think so. The price action is far ahead of the fundamentals and far ahead of the news flow. That is exactly what you have seen in the last three months because if you just went by the news flow, India should not be trading at 11,200. There is so much talk about the Indian market PE trading at historical levels but the market has really shrugged off all of that. Given the way some of the metal stocks have bounced back in the last one month, it gives me a lot of confidence.

Metals as a space is also coming back after a big massive two and a half year bear market. Therefore, the scope for recovery is very large and the top four or five stocks in the metal space has been our favourite bets which we have been recommending to our subscribers. I believe that the metals index could be heading towards 2700 and that is another 20% from here. So cyclicals as a basket looks good. They are coming back and they are taking over from some of the other sectors like banking which are clearly not doing so well.

Irrespective of the consensus on the Street and just about every analyst having a buy rating on ICICI Bank, the stock has been unable to push forward after getting to 370-380 levels and had fallen to Rs 350-360. Is it a struggle for this one to push higher?
Yes, there is indeed a problem. If you look at the last six years when banking did well, you do not have to tell it 10 times that please move it. It just moves. Anytime there were some news, it just moves but in the recent past, every time there has been an attempt to rally, it has just fallen short. It seems as if there is selling pressure on every rise in the last six years. There was always demand at the lows but now there is selling pressure at the highs.

One should not waste time looking at the banking space. It is a very large part of the overall market but because it underperforms and because the leadership has changed, we should stay committed to pharma and IT.

IT is leading the market into new life times highs. This is a phenomenal development which is here to stay and midcap IT has been our dark horse pick for a while now. So pharma and top FMCG stocks are an avoid and everything else looks much better.

What about Reliance? Given the leadership and the strength that Reliance has provided, do you think there is still enough opportunity to get in at Rs 2,100-2,200 odd level for Reliance?
It is not so comforting to enter Reliance at Rs 2,100-2,200. The move has been phenomenal. It has doubled in a matter of three and a half months but every time there is a small 4%, 5%, 7% kind of a correction and with the base around Rs 1,900-1,950, one could look at an opportunity. But the kind of opportunity which is available elsewhere is something that we do not get in Reliance at these levels.

I remain bullish and I do not think there are signs of topping out. This is a stock that can easily move towards Rs 2,500 if you are really looking at it from a medium term perspective and Reliance is doing now what HDFC Bank and Bajaj Finance did in the last couple of years. We are going to see a very narrow uptrend being led by IT and Reliance. This will continue but as I said, my favourites are in some of the other pockets of the market but speaking of oil and gas I think the OMCs HPCL and BPCL have a very interesting set up. I think a foundation is being laid for a much larger move. If you want exposure in this space, those two might be better picks.

Besides the OMCs, what are the other names that you are bullish on?
Our top picks remain in the form of IT, oil and gas, metals and pharma. That does not change but the real opportunity is in the midcaps and smallcaps. The midcap index is hitting levels of 16,000 but if you look at it from a medium term perspective, I am looking at a level of about 18,000 — another 15-16% upside over the next six months.

Within the midcap space, there are a lot of pockets that are starting to do well. These are auto ancillaries, some of the power stocks, fertiliser stocks and agri based stocks are starting to do well. Some consumption stocks have also started to make a comeback. These are pockets which I like and on a day to day basis there are many stocks which are breaking out of foundation. Also, chemicals is a big theme of the last six months. It just keeps getting stronger every passing week. These four or five themes that I have mentioned are the ones we are focussing on.

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