The stellar run of Indian indices is likely to continue, believes Gautam Shah, associate director and technical analyst, JM Financial. In an interview to CNBC-TV18 he says this bull market is here to stay and we are still in the first leg. For September, 7850 seems to be the new base for the Nifty, but it could hit 10,700 by December 2015, he adds. He expects Nifty to find minor resistance at 8,250.
Going ahead, Nifty’s upmove will be led by Bank Nifty, which may hit 18,700-19,000 levels in the near-term. He sees 15,300-15,500 as support levels for the banking index.
Shah recommends retail investors to bet on midcap stocks via mutual funds because the space is moving with good momentum. On specific stocks, he is positive on oil and gas major ONGC .
Also Read: 8 Sensex blue-chips add Rs 52,277 cr in market valuation
Below is the verbatim transcript of Gautam Shah’s interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy
Sonia: Record highs, 8140 has been crossed effortlessly and 27200 on the Sensex. In terms of the bull run are we still in the nascent stage you think or now we are somewhere in the middle of this bull run and you should start to weigh the pros and cons at this point?
A: The markets continue to be on a very strong wicket. How much of a cliché it might sound but the bull market is on and is here to stay. And the way the markets have reacted to some adverse news flow from global markets in the last couple of months, I think that is quite incredible. In fact if you look at the price action itself sometime in late July and early August there was this set-up on the charts which had turned a little weak and it is because of that we said last time that may be the market should see a period of correction.
But what really happened was very interesting because the Nifty just saw a 300 points correction from that level of 7,800 to 7,500 but if you look at the way the sectors and stocks behaved out of the index, it was completely a different story. The oil and gas index, the metals index and the capital goods index lost 10 percent each while the Nifty was in that range and it just lost about 300 points and you had a scenario wherein the Bank Nifty underperformed for as much as three months, mid May to mid August and obviously we have seen the way the reality in infrastructure sectors have behaved. So if you look at all of these factors, what we witnessed was really a running correction which is very typical of strong bull markets and we have seen something like this in that 2003-2007 period.
This market is clearly headed higher. The way it has taken out that 7840-7950 resistance in the last couple of weeks, that clearly suggests that this market just does not want to correct. Yes it is slightly overbought, I think a lot of technicians might argue looking at some of the divergences, but I don’t think that is important because in bull markets you have to give complete important to the price action and I think the price action has been extremely smooth as you pointed out.
Also when we look at technical studies I think the moving average is one study that works brilliantly in bull markets. You can see 2003-2007 examples and every correction in the last three and half months has stopped at the 50 exponential moving average. So this is something that has been working well and therefore we would like to monitor it and that is the reason I believe that till the Nifty is above 7800-7900 which is the new base for the month of September, I think this market is clearly headed higher. Yes there will be corrections from time-to-time, but that is purely going to be a minor one.
I think 8200-8250 is a minor resistance area which we have been working with in the last couple of weeks. We are almost there but the market will deal with it, but eventually in this leg of the run we see the Nifty moving towards 8600-8700 and there we will have to do a review of the step-up whether the market continues to move higher or whether we see another period of correction. The reason I say this is because October has historically seasonally been a little negative month for our markets. So keeping that in mind, the next two-three weeks looks pretty comfortable but as we get into October things might just turn a little negative.
Latha: When you say comfortable is there a level that the market should worry about?
A: You know bull markets do not have levels because you are trading in uncharted territory and you really don’t know where it is going to stop. I once again give you the example of 2003-2007 when the Sensex started off moving from 3000 levels, who thought that it is going to go all the way upto 21000 and it is going to terminate there. So it is very difficult to put a number to the current bull market. If I have to really stick my neck out for the next 12-18 months, the eventual target for this bull market could be about 10700 on the Nifty and we could be there by December 2015, but this is a target for investor clients.
For people who are trading this market on a regular basis, on a weekly basis, I think every small correction looks very damaging because even if the Nifty loses 100 points, you have a scenario where in suddenly you have so many stocks losing 10-15 percent. So from an investors perspective, you need to deal this market differently and from a trading angle you need to keep a close watch at support levels. Also I feel that this is really the first leg of this bull market.
The last time I mentioned that may be the market has completed the first leg, but I think the first leg of any bull market has a very fairly tale feeling to it because just about everything is perfect, the volumes are good, momentum is great, the news flow gets better as we have seen in the last one and half months. At least on the local front and there seems to be a herd mentality, there seems to be a herd which is active in the market and till the market does not really satisfy the appetite of people who want to go long in this market, I don’t think you will see a serious correction of 10 percent which has really not happened so far. And this move that we have seen so far from January to September, I think is very similar to that move that we saw in 2003 wherein the market doubled in about 8-10 months or may be 12 months.
At some point of time just about everybody is going to be satisfied right from the stronger hands to the weaker hands and once they are satisfied, you will see a 10 percent correction which has to happen at some point of time in the next three months. Then may be we start the next leg of the bull market which is going to be much more measured.