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Positive on private banks, pharma, autos and select largecap IT stocks: Vikas Jain, Reliance Securities

Domestic consumption will get a boost across all the major sectors during the festive season, according to Vikas Jain, Technical & Derivative Research Analyst at Reliance Securities. Any trend reversal levels will be 16,700, below which markets may drift further to 16,200 levels. Edited excerpts:

Benchmark indices dropped 3 per cent in September. Even on a weekly basis, Sensex and Nifty50 settled in red. What weighed on the market sentiments during the period?
Nifty50 index once again has resisted crossing 18,000 levels and witnessed a sharp decline on the back of weakness in global markets due to interest rate hikes announced by various central banks in the world to combat higher inflation and the dollar index is at a 20-year high weakening the FII inflows. The broader weakness accentuated the fall as we broke the lower range of 17,400 levels and derivatives expiry volatility in terms of options OI further pushed the weakness.

The October series has kicked off on a strong note, with benchmark indices zooming sharply on Friday. What is your outlook for this series? Which are the key sectors to look at in the current series?
The domestic credit policy came in on expected lines with a repo rate hike of 50 basis points to 6.9 per cent and maintained the inflation forecast which led to some recovery from the lower range of 16,750 levels on the last trading day of the month.

The key macro events announcements are being put through and the markets would focus more on the second quarterly results starting from the second week of October. Among sectors we remain positive on private banks, pharmaand select largecap IT stocks could witness positive momentum.

What should be the strategy of traders to navigate through this series? What are the key levels to watch out for and how should they position themselves?
We expect markets to consolidate at current levels in terms of broader range of 16,700-17,400 levels over the next few weeks and expect individual stock reaction within sectors. The auto sector could be in focus next week with respect to the monthly sales number and could witness some traction after a sharp decline in the last 2 weeks from its 52 week high. The trend reversal levels will be 16,700 below which we expect the markets to drift further to 16,200 levels.

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October will be guided by multiple factors including September quarter results and festive mood. What are your expectations from India Inc? Which sectors are expected to outperform?
India seems to be a saviour from the high inflation and slow growth challenges as credit growth is upbeat and our corporate profits are improving over the past few quarters. The festive mood is on since the last week of September and with two big festivals falling in October, we could witness a strong growth in sales of automobiles, tourism and consumer service sectors to focus on as domestic consumption is high, robust tax revenues in term of GST collections, better monsoon and rupee depreciation aiding our exports in various sectors.

Pharma stocks have emerged as the outperformers recently. Do you think that the trend will continue? What is your take on healthcare and allied counter? What are your key picks from this space?
The pharma sector has outperformed and gained 2 per cent month on month compared to a fall of 4 per cent in Nifty50. We believe the positive trend will continue as it has started showing outperformance after a long time as the USFDA issues and announcements are minor in nature with respect to the plant observations.

We believe that with rupee weakness, export revenues are expected to increase and new product launches in domestic formulations, US branded generics will drive growth.

Healthcare or diagnostic stocks which have witnessed sharp decline in the last quarter have witnessed some bounce back from the lower part of the range. We like Dr,Reddy Labs,

from the large cap while , IPCA and Life Sciences in midcaps.

Energy, power and IT stocks remained beleaguered in the last month. Do you see these stocks getting their mojo back? Which stocks from these sectors do you find attractive from a trading basis?
These 3 sectors have been the laggards in September as heavyweights like Reliance and OMCs from the energy sector declined in the range of 8-10 per cent. IT stocks also witnessed a sharp decline on back of global weakness and sharp negative FII outflows accentuated the fall.

The IT sector has declined by 5 per cent in September and down by 30 per cent YTD compared to 1.5 per cent decline in Nifty50, contraction in valuations multiples from the peak, with rupee at new low peg to dollar and quarterly results expected next week any positive surprise in the sector could witness strong upside to make a contrarian buy from current levels. Among stocks we prefer

, , and from current levels.

Midcap and smallcap counters have also been troubled recently. Do you think the worst is over for them? Do you think it’s time for value hunting? If yes, which stocks look attractive to you?
We believe the Midcap to Nifty spread ratio is still at the higher end of the range and with the global negative sentiments being weaker in terms of global recession news flow could present downside risks. The higher interest rates will also put pressure on margins in the coming quarters posing some risks for earnings growth and valuation multiples. One can invest in corrections of markets and increase exposure once the broader optimism and sentiments improves.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)



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