Gautam Shah on market bottom and Nifty’s next move

“While for the Nifty itself, I cannot say with confidence that the recent low was a bottom, there is a possibility that we might find resistance at 23,050 or 23,250, thereafter possibly turn around and possibly retest the recent low once,” says Gautam Shah, Goldilocks Premium Research.

Decent recovery actually from those 52-week lows, but does it look like in the near term we may have bottomed out or bottomed out for good?
Gautam Shah: Well, a large part of the market could have bottomed out, that has been our view for the last six weeks, that the markets are extremely oversold and most of the negatives were discounted.

As the Nifty got close to that important number of 21,800, we were very clear that margin of safety and risk-reward was once again in your favour after almost five, five-and-a-half months. I am not in the camp which believes that this is going to be long drawn and the markets are going to stay in a bear market for another 12, 15, 18 months because the average decline on the NSE is already about 40%, which means the damage that could have happened over 18 months have actually happened in five months and cycles have shrinked given what markets are doing these days and given the fact that discounting happens really fast.

While for the Nifty itself, I cannot say with confidence that the recent low was a bottom, there is a possibility that we
might find resistance at 23,050 or 23,250, thereafter possibly turn around and possibly retest the recent low once but that is really not important.

From a medium-term, long-term investor perspective, even current levels is a great buying opportunity because a large part of the market, many pockets of the market, many themes of the market would have bottomed out.

So, I do not think the Nifty itself is going to move big on the way up or on the way down, it is going to be more of a range bound market for the Nifty itself. But if you are in the right pockets, there is serious money to be made over the next 6 to 12 months.
Let us first talk about the Nifty. What is the range that you are calling for the year ahead, both on the downside and upside?
Gautam Shah: There are two camps in this market. There is this one camp which is aggressively talking about this being the greatest buying opportunity in decades and there is one camp which believes that this is a local problem, India corrected first, now global markets are correcting and therefore we are going to be in a difficult period for many quarters to come because there is a genuine slowdown and earnings are not matching with India’s valuation. So, these are the two camps that are very visible and seem to be debating every single day. I believe there is a third camp and I want to be in that third camp which believes that the market is not going to go up much and go down much because there are headwinds and there are tailwinds after the kind of fall that we have already seen.

So, 21,800 thereabouts would be a very important support and 23,500-24,000 is going to be sort of a resistance. So, we have got into a time correction phase. The price correction more or less is done with the weakness of the last five months.

Now, for the next few months as we digest the next couple of quarters of earnings, we are going to stay in a time correction and in this period, as I said, the Nifty would not do anything special but stocks will do exceedingly well and there are many pockets that we are liking.

So, we are all ears. Tell us what stocks does one need to be in to actually make money and forget the index, like you said, that could very well consolidate for a long time.
Gautam Shah: Well, financial services has been our favourite. Every time I have been on your channel in the last many months, I always spoke about the fact that financial services have shown relative outperformance in these last five months when everything collapsed.

I mean to see HDFC Bank at 1700 is as commendable as it can get and ICICI Bank, SBI, some of these top banks have done exceedingly well and the Bank Nifty at current levels of about 49,000 itself is quite a positive sign.

So, financial services technically, fundamentally, based on smart money action, I believe is going to be one of the better trades for the next 6 to 12 months.

This is followed by metals, which is going to be the star performer for the next 6 to 12 months. We are seeing some amazing charts. In fact, it is right on top of our list. And all top-quality metal stocks could deliver anywhere between 20% to 40% from current levels. So, these are my two favourite sectors where one can commit capital. Barring these two, power, infrastructure, real estate are three other pockets that we like.

But since you did touch upon the metal pack and that is definitely shining bright on the back of the news flow, can you help us with your top picks within the metal basket and what are your targets on the select companies?
Gautam Shah: See, to understand a particular sector, you need to see how it performs in the difficult times and the metals index in the last one, one-and-a-half months has been absolutely range bound. And now as the market is starting to move up slightly, you are seeing metal stocks doing exceedingly well.

So, I am seeing this as a mega trend and if the index can appreciate about 20% and go back to lifetime highs, I am pretty sure some of the top stocks in the metal space JSW Steel, Tata Steel, SAIL, Nalco, Hindalco, the entire pack has very similar charts.

They could appreciate anywhere between 20% to 40% and this in an environment where I do not even expect more than 10% upside for the Nifty.

So, there is great alpha to be made. And in the next move up, whenever it happens for the overall market, there will be new leaders emerging. So, please do not latch on to the winners of the last two years, I think they will now be laggards.

That is such an interesting point that you had made, that the composition of leadership and underperformance may actually change. Highlight what sectors do you see those kind of obvious moves in? You did talk about financials, the larger pool, banks as well as NBFCs both and maybe IT could be that one stark underperformance that one has seen play out. Other than that, where do you think would be leadership and where do you think would be underperformance?
Gautam Shah: There is going to be leadership and value. India is always known to be a growth market and growth stocks have done very well over the last four, four-and-a-half years. But now it is really time for value because anything that is very richly valued gets hammered very quickly and gets discounted very quickly on bad results and bad news flow.

We have seen this with so many stocks in the last five to six months. So, all those stocks which are typically in that PE band of say 5 to 25 is something which I am looking at and what comes right on top of the list is the entire PSU space.

In fact, we spoke about it to our clients last week and we believe that the entire PSU basket can be one of the better performers over the next 6 to 12 months because earnings are good, there is still under ownership, valuations are excellent, charts are very good, all have tested medium-term, long-term supports, and these are solid companies that do not get impacted with global issues. So, in that sense, PSU is a sector that we like from a 6 to 12-month point of view.