India’s Nifty 50 is likely to reach new heights of 15,500 in 2021, albeit after a correction in January, according to Gautam Shah.
The benchmark has risen hand-in-hand with the U.S. equity market and still has some “juice” left for another three weeks after which it will likely correct in January, the founder of Goldilocks Premium Research told BloombergQuint’s Niraj Shah in an interview. “It’s just the momentum and lack of any negative news flow that is propelling this market higher.”
India’s indices tracked their global peers in the worst selloff since 2008 after the coronavirus outbreak. But they have since seen a one-way rebound, aided by hopes of a quicker-than-expected economic recovery, a potential Covid-19 vaccine and foreign inflows, erasing all the pandemic-triggered losses to trade positive for the year as well as scale new peaks. The rally even prompted global financial services providers to raise their targets for the domestic stock market. Goldman Sachs revised its target for the Nifty to 14,100 by the end of 2021, while Nomura expects the index to touch 13,640 by December 2021. Morgan Stanley and BNP Paribas expect the Sensex to top 50,000 by the end of next year.
Indian equities are “over-extended” no matter which technical indicator one refers to. Within the Nifty 500 Index, 95% stocks are trading above the 50-day average on a sustained basis, Shah said, pointing out that typically such readings happen for a day or two. “I haven’t seen [that] in 20 years of me tracking the markets,” he said as he suggested traders to operate with a stop loss.
Shah, however, cautioned against investing more money into the indices under the current circumstances, saying, “in terms of risk reward, these are not the levels where you want to increase leverage longs”. Investors sitting on big gains should book their profits and buy in at lower levels once the correction takes place, he suggested. The dip, he said, may be as large as 5-10%.
That being said, the chief strategist sees opportunities in a number of stocks and sectors which, he said, will gain despite a fall in headline indices.
Here’s what Gautam Shah had to say about various sectors:
- Metals were in a massive bear market for three years and now the sector has rallied 60% in a matter of seven months.
- This is a multi-year bull market in the metal space.
- “But at these levels do a recommend a buy? not at all.”
- “At these levels, our targets have been met and I don’t see a risk-reward.”
- Information technology and fast-moving consumer goods are likely to give these kinds of rewards in the coming six months.
- It is in a mega bull market which has only reached halfway.
- “The kind of strength IT stocks will see over the next 12 months will be mind-boggling for some people.”
- When compared to the Nifty 50, the IT index has had a breakout from a range that it was stuck in for the last four years.
- This is the start of a multi-quarter uptrend for IT and this will provide huge cushion to the Nifty because of its weightage.
- Medium-term target for IT index is 26,500 points.
- Apart from the upside, IT gives a margin of safety because even if we go through a correction anytime, IT stocks will do well.
- Correction in the last few days is an opportunity to buy in.
- “Tata Motors Ltd. has been our dark horse. Have also recommended Maruti Suzuki India Ltd. and Eicher Motors Ltd.”
- The working target for the auto index is 10,500 points.
- Charts indicate that things are picking up on the ground.
- Won’t go overboard with all names, only select names are worth buying since autos tend to go up with nifty and come down with Nifty.
- The working target for FMCG index is 36,000 points.
- Like Britannia Industries Ltd., Nestle India Ltd., ITC Ltd., Dabur India Ltd., Marico Ltd. and Colgate-Palmolive India Ltd. at current levels.
- Like IT, FMCG sector gives a sense of security even when there is a wider market correction.
- Auto ancillary will be the dark horse sector for 2021.
- That’s because the auto sector is likely to do well and valuations are good
- They went through severe destruction over the past few years and are now starting to do well.
- Can look at the sector from a three-year perspective.
- Autos may give you good returns but auto ancillary might be “fortune making opportunity”.
Public Sector Units
- After nearly 10 years of disliking public sector enterprises, they are now looking good.
- There has been a genuine technical breakout in this sector.
- Would recommend all other than public banks.
- The likes of BELs and REITs have lovely charts and could be wealth creators for 2021.
Oil Marketing Companies
- They have seen false starts so many time that people have given up on them.
- At these levels, this could finally be the real breakout.
- Top two companies could give you a 25% upside. Shah didn’t specify the names.
- Do not see room for reward in the sector at current levels.