BQ Edge | Not A Bull Market Where You Wait For A Correction, Says Gautam Shah

India’s current bull market is “unique” and can’t be studied with traditional technical analysis parameters, according to Gautam Shah.

“We believe there’s much more upside because this is the kind of momentum which cannot be broken easily,” the founder of Goldilocks Premium Research told BloombergQuint’s Niraj Shah in an interview on BQ Edge.

Shah expects the Nifty to rise to 15,500 in the medium term. For investors with a 12-18 month timeframe, Shah has set a working Nifty target of 18,000—implying a potential upside of at least 18% from current levels. “There’s some logic to believe that the market may see some correction around 15,500 but I think that will be a passing correction.”

Indian equities have doubled from their lows in March 2020 during the pandemic, with the S&P BSE Sensex and NSE Nifty 50 delivering returns of over 100% since then led by reopening of the economy, high inflows from foreign investors and corporate earnings growth.

The over 1,000-point correction seen in the six days preceding the Union Budget, according to Shah, did a “world of good” to the chart set-up. “97% of the Nifty 500 stocks were trading above their 50-day moving average. This hasn’t happened in 25 years,” he said. “The correction led to that number of stocks falling to 55%.”

Consumer goods and automobiles, Shah said, are the top sectors which will lead the Nifty higher going forward. “Small corrections from time to time will happen but because we don’t have any congestion point at lifetime highs, it’s very easy for the bulls to take the Nifty higher every single day.”

Bank Nifty’s Outperformance

The Nifty Bank index had a hurdle at the 32,600-mark which it managed to decisively cross on the day of the Union Budget, when it ended with gains of over 8%. “After that level was taken out, the momentum is back in the index,” Shah said. He has a near-term target of 37,000 on the 12-stock gauge and a longer-term target of 42,000.

Since Jan. 31, the index gained over 5,540 points or around 18%, outperforming the Nifty, which rose over 1,500 points—or 11%—during the same period.

PSU Banks: Only A Trading Play?

The PSU Bank Index has outperformed both the Nifty and the Nifty Bank index—gaining 20% since Feb. 1.

The gains have been led by State Bank of India and Indian Bank—both of which have gained over 39% since Jan. 31. SBI also had its best week in over a decade—during Feb. 1-5.

Shah said the best way to play the PSU Bank theme is only through India’s largest lender. “Everything else is pretty much a trading opportunity,” he said. However, SBI’s recent 39% surge makes Shah uncomfortable over making a fresh purchase. “I think the run has happened and most of the good news is in the price.”

ITC, L&T: Favourable Risk Reward

ITC Ltd. can move like SBI over the next few months, Shah said. “It’s about risk-reward. ITC gives you a wonderful dividend yield, it’s a great brand, a great story and a great chart more than anything else,” he said, adding he expects the stock to touch levels of 300 “anytime this year”.

Shares of Larsen & Toubro Ltd. have gained over 18% this year and Shah said the entire capital goods space can be the story for the next 2-3 years. “It’s still covering up for the underperformance of the last five years and can easily become a Rs 2,000-stock.”

Auto Ancillaries Over Autos

The Nifty Auto index has risen nearly 19% so far this year, led by gains in stocks like Tata Motors Ltd., which has nearly doubled, and others like Ashok Leyland Ltd. and Mahindra & Mahindra Ltd. However, large cap auto stocks are only a “positional trading idea” for Shah.

Despite its recent underperformance, Maruti Suzuki features among his top bets as it can become a “five-figure” stock once again. India’s largest carmaker is the only laggard on the Nifty Auto index so far this year—down 1%.

However, Shah expects auto-parts makers as the theme to play over the next 2-3 years, citing Endurance Technologies Ltd. as one of his top picks. “We see the V-shaped recovery getting completed at levels of around 1,570, post which the real outperformance will start,” he said, adding that he foresees the stock trading at Rs 1,750-1,900 very soon.

Structural Change In Rupee?

The rupee has appreciated 0.4% since the start of the year and is the fifth-best performer among Asian peers. Shah sees a major change in the “currency’s character”, which was in a downtrend for nearly a decade.

“If it keeps sustaining below 73, you could see levels of below 70 within the next few months and maybe levels as low as 68,” he said. “We as investors need to keep that in mind as it can change the dynamics for a lot of sectors.”

Watch the full interaction here: