In an interview with ETMarkets, Mehtasaid: “Expect a trade pullback in baking stocks in the 7-8% range over the medium term.” Edited excerpts:
A rollercoaster week for investors, but the bulls managed to get the upper hand. Benchmarks closed with handsome gains, so what drove the price action at D-Street?
Although the Nifty is still stuck within the wider trading range of 15,700-16,400, it staged a strong recovery from the daily low during the week, showing signs of strength at lower levels as it protected the previous week’s low.
This week’s bullish move was led by banks and finance companies. Our top 10 custom Nifty indices have picked up momentum again to the upside after a few sessions of consolidation, implying strength in the major indices.
We look forward to continued action in selected large caps. On the P&F chart, Nifty50 confirmed a Triple Top buy, suggesting a higher probability of it breaking out of the recent consolidation phase and is expected to try 16,700 to the upside.
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How did the May series end and what is the outlook for the June series? Where do you see markets moving in the first week of June series?
In the May series, Nifty fell 6.2 percent on an expiration-to-expiration (EoE) basis. The Metal and Smallcap 100 indices underperformed significantly, losing more than 15% EoE. The financial services and BankNifty indices relatively outperformed the benchmark. Transfers for Nifty/Bank-Nifty stood at 79% (~1.3cr shrs)/86% (~25.5lakh shrs) compared to 78% (~1.01cr shrs)/85% (~27lakh shrs) in the previous month.
Rolls across the market were 92% up from 94% the previous month. During the month, the FII index futures long/short ratio rebounded from its lowest levels in two years; while Nifty’s OI PCR posted its lowest reading for several years at 0.65, after which Nifty entered a consolidation phase.
In the June series, BankNifty staged a consolidation breakout. In addition, he managed to fill his downward gap formed on May 6; we expect BankNifty to continue its outperformance and rise above 37,100 on this expiry.
Sectorally, banks saw significant buying action in the past week. What is your opinion on bank stocks? Will the momentum continue in the June series as well? Any name that looks strong?
Although BankNifty is far from its April 2022 peak, it managed to defend its upsloping trend line and its 2-year moving average, resulting in a pullback in the last two weeks.
We believe that numbers always have an important story to tell. Therefore, we investigate BankNifty’s historical trend of the last 15 years and its performance in the second quarter of the calendar year (ie April, May and June).
In CYQ2 of the last 15 years, in only 2 instances BankNifty posted negative quarterly returns (ie 2011 and 2008). The average quarterly return on the CYQ2 Leadership Index over the last 15 years is ~10%.
In CYQ2, it tends to outperform the reference Nifty. Historically, strong moves are seen in BankNifty and its components during this phase.
Therefore, it is likely to play a significant role in the coming month.
has shown relative strength over the past two months.
Meanwhile, a trade pullback in the 7-8% range is expected in HDFC Bank and ICICI Bank in the medium term.
Metals took a beating, down more than 4%. What led to the price action and what should investors do?
The relationship between markets is in a mess right now, which is taking its toll on the commodity space. US dollar index has retraced from peak but structure is bullish, commodity currency (ie Australian dollar futures) pullback but overall structure is bearish.
If these situations persist, it does not seem to make sense to call the space of metals a background. The Nifty Metal vs Nifty ratio is trading below the annual average, implying continued underperformance for the metal against the benchmark.
The cooling in DXY has given rise to a respite in the metals space, but it remains a vulnerable spot, prone to swing highs.
Instead of chasing a beaten space, sticking with recent outperformers like autos and banks would provide a better trading opportunity.
The dollar index hit a 1-month low. Do you think this will give equity markets a break?
In the past five years, this was the US dollar index’s third attempt to break higher, it has pulled back from the peak in recent sessions, but a big drop is unlikely.
I would rate the current move as a consolidation rather than a big reversal. In the short term, the inverse correlation has provided relief to equities, especially the emerging market space.
However, it is too early to conclude that the bull run is over for the dollar. A pullback move across multiple global indices and commodities is already in play, however, multiple broad structures across major indices are unlikely to provide further momentum.
For DXY, the RSI divergence was seen to the upside, resulting in a recent correction. We could see it retest the April 2020 peak around the 100 mark anytime soon.
Any trading rules one should follow to manage risk amid volatility in the markets?
When in doubt, always look to the big boys (i.e. index heavyweights). They often provide a confirmatory or background structure, which is then seen in the benchmark index.
Broader/mid-cap markets tend to cheat during the period of highest volatility.
(Disclaimer: The recommendations, suggestions, points of view and opinions given by the experts are their own. These do not represent the views of the Economic Times)