Short covering ruled the roost on Dalal Street today. The markets went from strength to strength, backed by strong global cues and closed with over 3% gains. The Nifty shut shop above the 4,600 mark, up 147 points, while the Sensex ended the day almost 500 points higher at 15,518. The rally was broad-based, with buying in stocks across sectors. But realty, metals, banks, and auto stocks stood tall with above 4% gains. Turnover picked up in late trade and breached Rs 90,000 crore, while the breadth was extremely strong at 8:1.
Sudarshan Sukhani of Technical Trends says the markets are in a trading range. “The nature of the trading range is such that when the market starts bouncing of from support and move towards resistance, there is a sense of euphoria. But it takes just one day to face resistance and for the markets to start sliding down back towards support. This euphoria changes to pessimism. This is what a trading range behaves like. We are on the euphoria part of the range. Once we touch 4,700 or even before, the chances are that we will face significant resistance and then will start the pessimism.”
He sees this range breaking out either on the upside or downside soon. “The market cannot remain inside a 350 point range for long. That will provide us with a tradable strong trend. Position traders can hold their fire and wait for either 4,700 to be taken out or for 4,350 to be broken on the downside. Inside this, we will just do what we are doing alternate between pessimism and optimism.”
Amit Dalal of Amit Nalin Securities feels the markets are expensive, volatile, and risky. “It is following cues which it itself does not know. You see a huge change in the level of the index week-on-week and it seems to be more a market which is topping out worldwide after having a four-month rally. I don’t see any reason why we should be seeing the market not at lower levels in the next couple of months mainly because there will be not much left to discount once you have finished this technical pullback which is coming in because of certain numbers coming out in the United States and Europe. I would not take any rally from hereon as a rally to put money in for the medium-term.”
Nitin Raheja, CIO, Rada Advisors, says the markets are really moving purely on liquidity flows. “If you really look at the market in June, we were down based on FII buying. In July, we were up. In August, because it has been a mixed trend, we have really seen markets slip in that range. In the shorter-term, there are no big triggers and the market is searching for a direction either which way and hence it is really settled down in a range.”
Sectors/stocks to watch:
According to Sukhani, investors should be in banks, real estate, construction, and infrastructure if the market hits 4,700. “If the market hits 4,350, one should go short on real estate and cement as these are very high beta sectors and are going to go both ways.”
He sees further upside in select sugar stocks like Shree Renuka Sugar, Balrampur Chini, and Bajaj Hindusthan. “These are good candidates for buying or for holding on.”
From the pharma space, he likes Cipla. “It is a buy on dips, and a trading opportunity every time it dips for traders.”
Sukhani believes there is more upside in Big IT like TCS, Infosys, HCL Technologies, and Tech Mahindra.
Dalal is positive on sugar and auto despite finding valuations high. “Among auto companies, one has to differentiate between Mahindra & Mahindra (M&M) and the rest of the auto pack because the rest are more related to perhaps a change in the economy.”
On sugar, he said: “The commodity is showing tremendous strength. Import-landed cost of sugar is about Rs 28. There is no stock available for distribution at almost the full consumption level that you need for the whole of next year. The parameter of improved earnings over last year is phenomenally high. The percentage data of earnings last year, which we had in sugar companies, will not be equally high next year because sugarcane prices will be also equally high. There is going to be a higher impact of raw material cost, but the selling price is already Rs 28 or so. There is a fear that the government will intervene here but it may not be that hard.”
He says media stocks have not participated in this rally and are prime candidates to lead the next leg of this rally. “Media stocks have not participated in this whole rally at all. To a large extent, results here depend on ad revenues. If there is an improved economy, then the ad revenue should start coming in perhaps better by the second or the third quarter and that should start reflecting in the price.”
From the pharma space, Dalal says he would invest in Dr Reddy’s, Ranbaxy, Cipla, and Lupin.
Despite Sukhani and Dalal being positive on the sugar space, Raheja feels investors should be cautious at higher levels and maybe take some money off the table.