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Expect another 5% gain if Nifty breaches 10,000-mark: Gautam Shah – Economic Times

This has really become a market where you trade and run in the largecaps and you buy and hold in the midcaps, says the Founder & Chief Strategist at Goldilocks Premium Research.

I want to talk about the strength and resilience that we are seeing within the broader universe because you are seeing the trend of the mid and the smallcaps outperforming the frontline indices as well. What kind of momentum are you seeing over here?

Benchmarks are not important anymore. We were in that period in the last few years wherein the Nifty was the market. Whatever the Nifty did, you had to follow those set of stocks but now, you have a scenario wherein Nifty has become irrelevant and the kind of strength that we have seen in the broader markets just tells you that it is here to stay. Let us not forget; while the Nifty has been in a bear market for two and a half months or three months, the midcap and the smallcap side of things have been in a bear market for two and a half years. So it is very clear that they are in that maturity stage of the bear market and the manner in which many of the midcaps and small caps came back in the last couple of weeks tells me that this rally is likely to continue and you could see strength to the extent of 10% to 12% in the near term. So irrespective of the Nifty behaviour, a large part of the market could have bottomed out in the month of March. Therefore, you are likely to see some very amazing opportunities in the marketplace.

What about the resilience that we have been seeing from the Nifty Bank? Your report says that when the texture of the Nifty Bank changes, the overall market just looks completely different and that is something that we have been observing. Do you think we could see potential scale up for the Nifty Bank? Will it be private banks completely leading the way or will they be clubbed with the midcaps or the PSBs as well?
That has been the call. I think in the last couple of months, you had the Bank Nifty taking this market down. You had this big fall last month where the Bank Nifty came off from 20,000 to 17,100, which I thought was a very important support and from that level, we are back to 20,000. It has really been all over the place for the Bank Nifty but as you rightly pointed out, in the last three sessions, the Bank Nifty has seen this recovery and the texture of the market looks different and it does seem that just for the time being, the Bank Nifty underperformance could have ended.

If that is the case, the market should remain firm. It is not that the Nifty and the Bank Nifty are going to run away from here. We are at an important resistance of 20,200 on the Bank Nifty and 10,000 on the Nifty. These are barriers which will not get crossed so easily. But if these levels do get crossed, it could open up another 4-5% for both these popular indices. But as I mentioned earlier, the opportunity really lies outside of both of these indices. The pharma space, the chemical space, some of the oil and gas stocks and telecom stocks is where the real opportunity lies. This has really become a market where you trade and run in the largecaps and you buy and hold in the midcaps.

I see Radico Khaitan, Supreme, and a couple of other names on your list. Talk to us about the rationale or potential you see in these stocks.
If you look, the midcap index is down 60% from the highs that we saw in January 2018 and the smallcap index is down close to 70%. So that just tells you the kind of damage that has already taken place. Therefore, from a longer term perspective if somebody has a three year or a five-year horizon, this is clearly a fortune making opportunity. We have maintained the stance for the last six months. Yes, there are pockets in the market that we like; some of the chemical stocks, some of the auto ancillary stocks, some of the midcap pharma and midcap IT stocks and some alcohol-based stocks and we covered one name in our report yesterday.

So there are many pockets on the market which are looking interesting and I would like to add insurance to that. Insurance is a big theme that is likely to play out over the next five years. The charts are setting up really well and you could see supernormal returns. So these five or six pockets that I mentioned without really naming specific stocks are the ones that we like. But for individual investors, for retail investors, the best way would be to pick up a nice midcap mutual fund and play the recovery over the next three years. I think you will end up making supernormal returns and beating every other asset class.

Let us talk about some of the themes that you are looking at as well? Has anything changed since we last spoke? Would you continue to look at pharma, for example, given the kind of performance we have already seen?
It is just the beginning. Pharma was in a bear market for a period of four years and this comeback in the pharma stocks is here to stay. We saw a nice patch of consolidation last week when the pharma index traded in that band of 9,000 to 9,700 but now with what has happened in the last two days, I am tempted to believe that a fresh breakout has taken place and these pharma stocks, the top six-seven names, all of them have synchronised setups.

I think they are likely to see greater strength and we have been recommending our advisors to at least have 30% of your portfolio into the pharma space because this is the bull market which is still in its nascent stage. We are working with 10,700 as the near term upside target for this index, which is about 1,000 points away and eventually, we are looking at 13,200. So in a difficult market environment or in a dynamic market environment with so many geopolitical risks, it makes a lot of sense to stay in pharma, chemicals and insurance. These are three of our top bets for the next six months.