shares to buy | Investment strategy: Nightmare for traders, but for investors with a 1-2 year horizon, now is a good time to buy: Gautam Shah
We are back at 17,100 on Nifty. What does the graph indicate? Will it stay? Is the worst behind us or would you say it’s pretty much a work in progress?
At some point, this correction of the past five months must have happened because we were all used to seeing markets witness a shallow correction and bounce back. This has happened every time since the Nifty started rallying from the March 2020 lows. In October-November last year we hit 18,600 hours. Let’s not forget that the American market is the big daddy. When unstable and weak, India and the rest of the world find themselves in a bit of a shell and that is exactly what has happened over the past three months.
Anyway, the market was a little heavy and that’s probably why we are seeing this correction. But to be honest, the main clues don’t describe the kind of damage that actually happened below the surface. Looking at the NSE500 or the entire NSE basket, on average the drawdown is around 30-32%, which is very significant by historical standards. I just feel like in the short term the downfall is pretty much over. 16,850 was and remains a very important support level. This is the number from which the Nifty also reversed yesterday and today we are seeing a rally led by good magnitude as you highlighted on the right.
Also read: We’re not going to buy everything now; here’s what to avoid this fall: Pankaj Tibrewal
Read also: Core portfolio unchanged but now oriented towards investments and domestic consumption: Sunil Singhania
I believe there could be some stability over the next three to four trading sessions. The flow of information around the Russian-Ukrainian conflict is now virtually ignored. You cannot hit the market every day with the same news feed. I would like to believe that the Nifty will enter a range, 16,850 down and 17,500 up. And if we actually look at the extended readings, we are at a historically oversold level. These are the levels from which investors must absolutely look for buying opportunities. For traders it’s a nightmare market right now because we’re seeing big rises and falls in spreads, but for investors with a 12 month, 18 month, 24 month time horizon, it’s a really good time to trade. basic risk-reward buying in many industries.
Banks have managed to weather the recent correction a bit better than other sectors and clearly given its large impact on the markets and the size of the sector, what’s your reading on the Nifty Bank charts? Is relative outperformance here to stay?
To be fair, it bailed the market out on its own, as yesterday morning Nifty was at a 5-6 month low and Bank Nifty was still 10% off its recent low. If I’m not mistaken, it was around 34,000. This just tells us that the banks have moved into outperform mode after underperforming all of last year.
This outperformance was coming anyway and the Bank Nifty chart is excellent. As long as Bank Nifty stays above 36,500 I want to believe it will lead the rally and bring Bank Nifty towards 39,500 and once the breakout happens we will see a bigger upside. In general, the large caps – Reliance, L&T, ICICI Bank, HDFC Bank – have been fairly stable over the past 10-15 days as the market has gone through some very volatile times. Large caps were therefore not as affected.
Interestingly, even within the banks, this has not been a widespread movement. We saw HDFC Bank underperform while Axis and IndusInd followed a completely different trajectory. SBI and ICICI Bank have been in a completely different orbit. Within banks, where do you see outperformance coming from?
We like to use ratio tables. We like to use relative strength charts because it gives us a clear idea of where the alpha is being generated and it’s very clear that over the last year the outperformance has been in ICICI and State Bank – two stocks that have been in our model portfolio all along. We continue to like these two names and believe they will drive Bank Nifty higher from current levels.
IndusInd Bank does its own thing. We don’t see any structural history there. Kotak is basically in a very wide range and it is more of a trading stock. It’s more of a stock insurance in tough times. HDFC Bank is the key stock to watch over the next three months, as this stock has such an impact on Nifty and Bank Nifty that if it underperforms, it drags the entire market with it. But with what HDFC Bank has been doing over the past 15 days, I’m tempted to believe the selling pressure might now be overcome as the stock is no longer making new lows and I’m more likely to believe it will start a new uptrend from here. ICICI Bank, SBI and HDFC Bank would therefore be my best choices in the sector.
You believe there is a buying opportunity in metals right now and that autos as a sector are outperforming with limited downside. Where do you find opportunities in these sectors?
We are currently looking at sectors and stocks that have gone through long periods of consolidation. For five to six months, the metal has been in range. The auto index has been in a range for the past four months. They handled the bad times very well. If you look at banks, autos and metals, I’m tempted to believe that a breakout is coming very soon on the upside for these two sectors. Auto stocks are right at the top of our list. The index is likely to clear the recent high of 12,000 and then move significantly higher.
Tata Motors, Maruti, Bajaj Auto have great setups and they will give supernormal returns over the next few months. Next come the metals where the weakness is a bit exaggerated. It looks very oversold and at current levels I don’t think there is much to lose in Tata Steel or JSW or JSPL, even Hindalco and Nalco. There are great opportunities and a very good place to hide because they have institutional interest, great fundamentals, come out of consolidation, risk-reward is great. So in a choppy market like the one we’re in right now, in both of these spaces, a 10-15% upside is entirely possible.