In the immediate short term, there may be a correction but things are much more positive from a 1-2 year market point of view, says Anu Jain, Senior Partner, Head-Equity Brokerage, IIFL Wealth.
How are you looking at the market lately after record highs and a furious rally, we seem to have gotten in a bit of a correction which was expected not completely unexpected. Do you think it is par for the course? What is your view on the medium to long term structural basis?
We have seen a very standard reaction to what came in the Budget -- a furious rally with people changing tracks as to where they were positioned before the Budget and post the Budget. Once the first round of changing track happened, the market gave a pause. Whether it is a 5% decline or it goes down a little deeper to about 14,300 also, I do not think I will be surprised about it.Repositioning is happening in metals, in PSUs. Nifty may show a negative bias.
If you look at the metal index, the way it has performed in the last couple of days irrespective of how Nifty has done or if you look at how some of the PSUs and OMC stocks have performed, the weightage on the indices is not as heavy as the correction which is happening on the Nifty side. But portfolios which are realigned to these changes as per the budget would be definitely doing better if not the same as they would have done when the Nifty was 4-5% higher.
It is just agnostic to what Nifty weightages are but it is definitely a positive sign when the broader markets start moving up. In the immediate short term, there may be a correction but things are much more positive from a 1-2 year market point of view. We have been cribbing for the last one and a half years that the Nifty rally is restricted to top 15 or 17 stocks. When that reverses, it will be a very positive sign for the overall markets.
Which are the broader market indices you track? Going forward from here, do you see the rally broadening into the midcap and small caps by a higher fraction?
The midcap 100 index, which was at about 23,000, has surpassed the 2018 high of 21,800 and since then has goe to 23,000. My team which works on the charts is telling me that it is in a rising trend channel and that can basically take you up to 24,000. You may see consolidations around those levels of 24,000 but we would have to relook at the charts around that time but given that individual stocks will do 7% to 10% out there because of the 100 stock index, it looks fairly positive. Another 5% from there would happen in the next two to three months.
The other index which I would consider a gross underperformer is Nifty Metal which is at about 3,600 odd. Here you can see another 10% odd upside coming pretty soon. So, all these indices which have been underperforming for two-three years, and in case of Nifty Metal for more than 5-6 years, are on a different trajectory. These are different kind of players who can take the market up.
What are the stocks in the metals pack which you have on your radar?
Fundamentally we have a buy both on Hindalco and Tata Steel. If I were to compare the same stocks technically, Hindalco gave a breakout at about Rs 270; then at Rs 300 did face some resistance but over the last two days, despite what is happening on an overall basis on the Nifty, it is tempting Rs 328-329 levels. Yesterday also, it made that high and retracted from there, going back to Rs 316-317. Today is back to those levels. The next resistance at least in the short term is about Rs 345 but the stock is poised towards Rs 375. It is still giving a good 20% from here.
Coming to Tata Steel, once you take out the 705 on Tata Steel, you can hit 870 pretty fast and the next three to five months’ charts indicate that. These are places where furious rallies continue. These are volatile stocks and the corrections will be equally volatile. But there is still some steam left out here.
Any thoughts on oil part of the commodity space?
Given that crude has recovered, Oil and Natural Gas Corporation (ONGC) right now is a positive trading bet. We have taken about Rs 104-105 for trading clients. It can go to a target of Rs 126-130. There are two parts to the PSU pack; people are getting back into PSUs given that there will be disinvestment, there will be InvITs, there will be REITs. All of those plays are working in favour of this sector. People woke up and got into ONGC at around Rs 102-103. I think 105 will act as a good support and it is poised to reach about Rs 130 in the next two to three months.
Usually when ONGC works, BPCL, HPCL do not work. But both BPCL and HPCL are looking good. In the case of BPCL, it is because of disinvestment plans. It is looking poised to reach Rs 465-470. Supports are closer to Rs 420. HPCL is looking good at about Rs 250 and if it handles that well, probably Rs 270-280. The Rs 235 zone will look as a support area. ONGC, HPCL, BPCL are coming across as PSU plays rather than an oil and gas commodity play now. This has happened after a very long time and can continue for some time to come.
We are looking at generic sectors like infra, power. So Torrent Power, ABP Power which is Power India -- look interesting. I would be positively biased towards infra because this is another sector which has been a gross underperformer since 2008 when we peaked out. Obviously the valuations compared to 2008 have been relatively low for Larsen, Thermax and any of the largecap or midcap infra stocks. Infra plays in the midcap sector is where one can focus but I do not think it is a trading bet. It is more like a one year bet on the entire sector.