We should be ready for some pullbacks; go for value theme in 4 sectors: Rohit Srivastava
Rohit Srivastava, Founder, Strike Money Analytics & Indiacharts, suggests preparing for midcap and smallcap underperformance until valuation consolidation occurs, favoring stocks with clear growth. A shift towards largecaps and outperforming sectors like banking and PSUs is expected to persist. Value themes in financials, PSUs, and metals, alongside interest rate-sensitive sectors like automobiles and realty, are anticipated to gain traction due to stable to accommodative interest rates.
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What are you making of the market moves we are seeing today? There is no move at all. We are totally lacklustre and very range-bound. Given the kind of outperformance that Indian markets have seen recently, do you believe this is the start of a little bit of a correction or do you believe this is just a one-off and we could see better days going ahead?
Rohit Srivastava: It has been a long rally. At some point of time we will come to the end of at least the first leg. What I mean by that is that on a six-month basis, we probably are in an uptrend, but every uptrend will have ups and downs and once we complete this first leg, then we can actually get the first meaningful pullback. Now, have we already reached that point? It is slightly hard to say because we are not really seeing a clear-cut breakdown in the Nifty. I can say that we are in the final stage of the up move from where that can happen.
But we will have to watch it for a day or two for an actual price reversal to be able to say that okay now the pullback has actually started. To do that, we probably look at 24,200 levels could be one important support. If we break 24,200, then possibly we could start somewhat of a corrective phase. As long as we are holding that, there is always the possibility that it will still stretch a little more towards maybe 24,600 before that happens or maybe even a little higher.
So, keeping some upside open, watching if prices actually break and confirm a reversal, once we do get a reversal, then we will look for a retracement of the entire rise that we have seen from 21,700, so that will be more meaningful, maybe more time based, but as of now we are just waiting and watching what happens.
Talk to us about the banking pack as well because Nifty Bank especially the PSU bank have been a clear outperformer, but today we saw a bit of a reversal coming in in the banking pack. In fact, the financial pack is getting weighed down by the Bajaj twins today, but on technicals, what do you make of Nifty Bank?
Rohit Srivastava: Banking itself is made up of private sector banks. The weakness you are seeing is coming from the NBFC space. Initially Shriram Finance reported poor results. Now the Bajaj Group is doing the same and that is causing a pullback. But if you look at the last year's results on an ongoing basis, this is a sector that had been outperforming as well. So, it could be something that we are seeing temporarily, but in the short term it is causing a pullback.
ADVERTISEMENT Now, financials have also been outperforming and therefore what we are really looking at is that at each stage, whenever there is a pullback, we really make a higher bottom than the last time. For example, the last time we were at 41,154 and we have actually moved up to 55,000. There was a case it could have gone on till 56,500. Now, we will watch key supports closer to around 54,800. If that does not break, there is a possibility we can still head towards 56,500. If that does break, then we will probably see a pullback of this rally from 49,200 and some retracement but eventually, that should give us a bottom that is higher than the previous one at 49,200. So that is the overall progress that slowly and steadily we move higher in the medium-term, but in the short term, we need to be ready for some pullbacks as we have had a strong up move.
ADVERTISEMENT What about the broader end of the market? On the fundamental side, lots of actions are coming in on the earnings front on the mid and the smallcap space. But on the charts, how are you seeing the SMIDs placed right now because we have seen the midcap and smallcap have been underperforming the benchmarks, which is not a trend that we usually saw in the leg up before the correction in August or September last year. We are seeing a little bit of trend reversal.
Rohit Srivastava: While the midcaps and smallcaps move up and down with the market, the expectation has been for quite a while that they will underperform the rest of the market. Now, underperforming means in the end, they go up less and that largecaps end up doing better. Basically, the outperformance of the midcap, smallcap has gone away and it might be a trend that we might see for several months before it changes – may be – in a year. So, we have to be a little prepared to see underperformance on the midcap, smallcap side for quite some time till there is further consolidation in the valuations. It may only be stocks that are able to show clearcut growth that might do well in this phase. At a very broad level, the shift has been towards largecaps that are seeing outperformance and that will continue. We will continue to see segments like banking outperform, PSUs which we have seen do well, will hold out much better than the midcaps and smallcaps.
ADVERTISEMENT What are the pockets of value for you? What are the sectors you are bullish on right now in this next leg once the correction is over? Also, what sectors are you bullish on?
Rohit Srivastava: There are two themes; one is a value theme where you look for undervalued segments of the market that did not get overpriced in the last rally and have corrected quite a bit and second is interest rate sensitive stocks because we are now entering a phase where the interest rate cycle has turned from rising interest rates to stable interest rates. We are now into accommodative interest rates as per the RBI policy which means that interest rates and bond yields will continue to go down and that will bring down the cost of borrowing and thus push interest rate sensitive sectors. In the value sectors, I would say on top is the financials followed by PSUs and after that, I will put metals and on the side of interest rates, it is automobiles and realty which will get some attention over time.
You mentioned autos and realty. Auto, of course, on the back of the tariff reduction from the US. So, that is largely fundamental. But what is driving this surge that we are seeing in the Nifty realty index today? After quite some time, we have seen this index find its footing and once again outperform the market. How sustainable is it?
Rohit Srivastava: Near-term, there is still a case for some more consolidation in the realty sector till lower rates are able to stimulate enough demand for especially housing in the lower cost region. So, giving it a quarter, if you slightly look outside a quarter then realty will be set to outperform as rates continue to come down and demand starts coming back. That is how you will have to look at it. Keep a slightly high time horizon. The bump up today might be just performance happening for a day, but in the short term, it can also pull back with the rest of the market and we should keep that in mind. But serious outperformance of the sector would probably happen a quarter or two down the line.
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