Look for alpha in these 4 sectors as midcaps turn best bets: Gautam Shah

What are your own internal estimates and targets that you are placing on the index now? Have you revised them?
We have been optimistic on the markets for the last many weeks now. The fact is that Nifty was unable to move below 10,600, which we thought was a very important medium- term support, That was a very positive, very encouraging development because prior to last Friday, you had a very pessimistic scenario at the marketplace. Midcaps were in a very bad shape. But this comeback of the last couple of days, pretty much breaks the shackles and tells us that the medium term uptrend has indeed resumed.

The market saw a very large dip of about 1,500 points from that level of 12,100 and while this dip has happened, the market has digested the rally of the last one, one and a half years and therefore I would want to believe that this move would continue.

However, if you look at the index itself, it might just take a little bit of a breather because to put things simply, in the last six weeks, the Nifty was in the range of 10,650 to 11,550. If that is the 500 point breakout, then the level that we were working with on the upside for this leg of the move was about 11,650. Today’s high is around that 11,650 mark and from there, we have seen some profit-booking.

The Nifty and the Bank Nifty and the Sensex might just get into a sort of range, take a bit of a breather and going forward, it is just going to be all about stocks. The real action is going to be in the midcap space. The index is currently trading at about 16,600 points and I am looking at a 2,000-point rally for that index over the next two, two and a half months.

The biggest opportunities in the current market is actually in the broader space — midcap and smallcap space. For the Nifty itself, we could have formed a nice short-term base around the 11,300 mark. Over the medium term, we are likely to challenge 12,100 once again. But maybe not in the same breath. There could be some back and forth action before we actually get there.

Where do you see the maximum contribution coming from? Do you believe consumption, which has been so beaten down, will generate higher alpha for you?
Yes it does look like. Just a week back, there was a scenario where apart from IT, everything was coming off. There were no major sectors that were leading the market recovery and every time the Nifty attempted to get pass 11,000, the fact that there was no leadership did not lead to a sustainable rally.

But with what has happened in the last two or three days, it is pretty much a game changer move because now suddenly a lot of sectors which were lying in a range, which were underperforming are coming back very strongly. Banks will definitely do well but just for the time being 30,200 was our working number. Today morning, we got there and it has seen a bit of a cool off. So to be chasing prices after such a big move of the last two days, might not be a very prudent thing.

I would wait for some cool-off. Everybody wants to get in because there were too many fence sitters but you need to be a little rational. The banks look great. Our bigger target is about 32,000 and eventually we will get there over the next six weeks. But apart from that, all the segments of the market which did not do too badly while the markets fell are the ones that are likely to run up. So oil and gas is right up there. FMCG is right up there. Capital goods as a space is likely to do well.

Autos as an index lost 40% in the last 9 to 12 months. The BSE auto index seems to have bottomed out around 15,500 and there is a lot of scope of recovery. In fact, I see bottoming patterns in many of the large auto stocks. So there is clearly a lot of alpha to be made in many of these three or four sectors which I mentioned. But as I said earlier, the best bet is going to be midcaps. I think stock picking is really going to be the key over the next four to six months.

Where do you find opportunities within autos let us take that to start with?
Unfortunately, I cannot talk about specific stocks but I think the top five names, many stocks have lost about 60-65% in the last many months. I think all of these underperformers of the last six months are likely to make a major-major come back. So without taking names I would actually buy the underperformers at these levels.

What about the pockets of the market that are lagging – IT, select pharma — would you leave them behind given that there’s so much more opportunity?
Yes I think so. It makes sense to leave them behind because people are now moving out of spaces where they were hiding for the last six months I think that is quite visible given what IT has done in the last two days, probably the only index which has not gained. So it is quite clear that people are getting into risk on mode and this mode might just remain for the next many weeks to many months. So yes avoid IT, avoid pharma. There are much better pockets in the market. From January 2018 to August 2019, 57% of the market — all the stocks listed on the NSE – had lost more than 50%.

So you can imagine the kind of scope there is for recovery and a lot of stocks will do well. The only point is do not see how much they have gone up from the lows. See how much they have fallen from the highs and that will make investors case much easier to buy them even at current prices.

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