Gautam Shah Says Nifty 50 Hasn’t Topped Out Yet

“The index found resistance at the important level of 11,600 triggered by the weakness in global markets. The close last Friday cannot be termed as a breakdown as yet. The market is still above the moving averages,” the founder and chief strategist at Goldilocks Premium Research, a technical research service provider, told BloombergQuint in an interview. “A close below 11,325 can bring in some more weakness towards the 11,080-11,100 level. This looks like a short correction within the larger uptrend that is unlikely to last for too long. The index is likely to stay in the 11,100-11,600 band for now.”

One of the possible reasons for this, according to Shah, could be the underperformance of banking and financial stocks that have 33% weight in the Nifty 50. “The Bank Nifty is probably the worst performer in this recovery from (March) lows. Given the kind of economic scenario that we are in and the news flow that we are getting on a weekly basis, the charts are indicating that the Bank Nifty underperformance is here to stay for many months,” he said. “While it does well in patches, it is unable to respect support levels and every time the markets go through a period of correction the sector is usually the first to fall.”

India’s equities gained for the third straight month in August. The Nifty 50 hit a six-month high of 11,794 on Aug. 31 but has been falling since as concerns over escalated border tensions and SEBI’s new margin rule masked the optimism from strong foreign fund inflows and development of a Covid-19 vaccine. The Nifty 50 has so far recovered 52% from its March low, while Nifty Bank has rebounded 35.5%.

Bullish On Mid Caps

According to Shah, there could be a sustained outperformance among mid caps over the benchmark Nifty for months to come.

“They are coming out of a massive two-and-half-year bear market—from the highs of 2017 to the lows of March 2020—so we think there is still a lot of scope. Our working target for the mid-cap index is 18,400, a good 1,400 points from current levels,” Shah said. “But more importantly, the mid-cap outperformance over the Nifty is starting only now. Despite a large percentage rise from the March lows, the relative strength chart versus the Nifty is still near its seven-year low, and it is only in the last one month that the relative strength line has seen an uptick. This indicates that mid cap over Nifty outperformance is here to stay for many months, and we advise to invest in quality mid-cap stocks.”

Real Estate Is Back

After almost a year of underperformance, Shah said the real estate sector is seen to turn around, and may outperform in the long term.

“Since testing the lower end of its broad range, we are seeing a nice comeback from some of the top-line stocks. DLF, Godrej Properties, Phoenix Mills, etc. can give supernormal [returns] but it might be a bit of hard work. So, buy and hold is what we are recommending,” Shah said.

Other key highlights

• Bullish on pharma, metals, IT stocks
• Reliance remains the top pick in the telecom space
• Expects oil marketers to stage a comeback. Bharat Petroleum Corp. is the top pick in oil and gas sector
• Remains bullish on precious metals. Expects gold and silver prices to hit new highs in the coming weeks
• Sees strong bullish setup for rupee. Expects rupee to strengthen to levels of 70.5/68.5 against the dollar over the medium term

Watch the full interview here: