Experts say mkt momentum to continue, advise sectors

Indian stock markets have completed a classic rebound. After the National Stock Exchange’s 50-share Nifty recently touched a 15-month high of about 5,150 levels, a sharp sell-off saw it retracing to about 4,550. From thereon, throughout last week and today, stocks rose rapidly and the Nifty is now perched atop the 5,000 level. Was the short-term correction that took place was a blink-and-miss? Will the momentum continue? How should you, as an investor/trader, position yourself?

“Even as many investors are saying the markets are not worth these prices,” says Sajiv Dhawan of JV Capital Services, “There is enough buying and enough appetite at lower levels and any trend follower would obviously be long at the moment.”

Dhawan says he does not see any short-term trigger for a 5–10% correction. “There is no negative news anywhere, global markets are performing well, liquidity is there, apart from interest rates, which are likely to go up probably next year.”

Valuations of Indian stocks are high, says David Pezarkar, Head - Equities, Shinsei Asset Management (I) Ltd. However, he adds that the amount of leverage seen in the market — “the sign of an impending reversal,” — is not high yet.

The rally that took place between the Parliamentary elections outcome in May and now has “sanely” chosen stocks that were good on earnings, he says. “The broader indices are up by 10–11%. But among the midcap stocks, half the stocks have fared well while the other half have not. “The stocks that have done well are the ones, which have either surprised positively in terms of earnings or the outlook has improved.”

“As long as foreign institutional investor (FII) flows continue to remain robust, there is no reason to be extremely bearish,” he adds.

Stocks/sectors that may outperform

“The sectors where valuations are stretched or those which have outperformed may be muted ahead,” Pezarkar says. “It is likely that certain sectors like maybe auto or banking will not continue to outperform. These may move in line with the markets,” he says, adding that the public sector banks looked more vulnerable due to rising interest rates, high government borrowing and risk on increasing non-performing assets. “Capital goods, which have been relative underperformers over the past six months, should see better traction going ahead.”

The outlook on the metal sector is also metal, opines K Ramchandran, CIO, Karvy Private Wealth. “Metals will take a breather sooner than later,” he says, adding, “It is a cyclical kind of business, which depends largely on the demand coming from China.”

“I do not see a breakdown in metal stock prices but definitely I think it will take a breather and the upmove going forward will be a little more measured,” he says.

What is the view on Suzlon Energy, a stock that trades on huge volumes, but has, in the past six months under-performed due to various debt concerns? “It remains a trader’s stock,” says Dhawan. “The target is maybe 5-10% higher from the current levels over the next few days but it is not a stock that I would be buying with any real conviction and even if it went to Rs 75-80, I would look to exit trading positions and from an investment perspective, probably still avoid.”

“It is definitely the one that can give you much higher levels over a period of time but I think there have been enough problems and issues on the stock over the last year, which should drive away a lot of serious investors because they have had their fingers badly burnt.”