NBFC stocks: NBFCs and OMC stocks offer margin of safety amid sector rotation: Rohit Srivastava

Now, given the up move that we are seeing today following that more than 1% decline yesterday, like given this current trend what are the key levels to watch out for, what are you making of the markets at this point?
Rohit Srivastava: So, what the market is doing is trying to hold on to its gains and possibly add to them with a lot of rotation. We have seen a strong move with some sectors participating more than others. Now, as you will see rotation from one segment to the other, you will continue to see the index try and push up towards probably the 25,300 mark from here. We, of course, going to be watching some of the levels that we do not want broken. For example, 24,494 that is an important level, a low that we made on the 15th of May. If we do not break that or in the Bank Nifty holding above the recent low that we made say yesterday around 54,800, these could be important levels from where the next move up could actually take place.

In fact, if Bank Nifty gets past 55,650, it would be a clear sign that it is probably headed towards 58,000, 60,000 in the coming days. So, that breakout is pending. It has been pending for a last couple of days. But we are closely watching if it can actually manage to do that.

So, essentially Nifty holding the lows or continuing to make a higher high, higher low kind of pattern. If we stay positive today, it would at least set up for a minimum 25,300 and possibly if we go beyond that, then we could be hitting all-time highs as well.

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But sectorally, give us some sense that where are you finding margin of safety at this point in time?
Rohit Srivastava: So, I would think looking at the setups today, the NBFC segment which is essentially the non-financial banking sector, those are interesting. Most of these stocks holding at or around their 20-day average if I look at the NBFC index, just around there, so that is a good support from where it can actually generate the next move higher. I am also watching out on the oil and gas stocks, specifically the oil marketing companies. Recently, they had a correction. The correction was very small and the short correction, essentially shows a lot of strength in the underlying. In fact, most of these stocks are not breaking their averages and are just slowly continuing to move higher. So, you may get another rally in that segment as well and that would be another one that I would like.
Can I take your view on the Q4 earning space, following the kind of earnings that we have seen, it has been a mixed bag, any particular sectors or particular stocks where you are seeing strength after the earnings and some key levels that you would suggest watching out for?
Rohit Srivastava: So, earnings have been mixed. In fact, for financials, they were surprisingly slightly weak. But if we just go by the overall flow, the interesting part was that while we have been expecting weakness in midcaps in general, the earnings growth was much better in midcaps relative to largecaps for this quarter, so that was a good improvement and that is what has probably got the momentum in that segment coming back again.

Now, we want to see it continue. It should not just fade. So, till the June quarter we still expect the same thing to happen, but if we do see the momentum in the mid and smallcap earnings continue, that would be a game changer for the broad market which was significantly under pressure over the last year.

Also, give us some sense what are you making of the pharma stocks at this point in time given the fact that the index is holding up and after quite some days we are seeing pharma is actually making a comeback, but do you believe this momentum is expected to continue?
Rohit Srivastava: I definitely think so. I think pharma is very well placed to do well in the coming weeks or months also. So, slightly longer term we should be pretty bullish. You are right the last few days of holding up has actually started to give some buy signals on our near-term momentum indicators and the Nifty Pharma index is holding above the averages. So, the risk-reward is actually pretty favourable to add into pharma stocks at this point.