What Are Charts Saying About Markets?
Goldilocks Premium Research's Gautam Shah shares his views on markets along with other sectoral indices.
Transcript
00:00 about what's happening to global markets, the dollar index strength as well, and the weakening
00:06 economic cues coming in, particularly from China, but from some other parts as well. It's very
00:11 important in such a point of time to take stock of what the charts are saying for relatively stronger
00:15 markets and economies like India. And who better than to put all of that into perspective than
00:19 Gautam Shah of Goldilocks Premium Research joins us on the show. Gautam, great having you. Thanks
00:23 for taking the time out. Gautam, I know that you
00:29 at various points of time, you look at the correlation between different markets and
00:35 asset classes and try and determine what could be happening. Are you feeling the need to do
00:40 that right now very much? And if so, what are the correlations telling you?
00:44 Well, Neeraj, I don't think there is much of a correlation because I think what's happened in
00:51 the last two and a half months is a very standalone kind of a rally for India. I think this is
00:55 something that you also saw to a certain extent in patches in the 2003-2007 period when foreign
01:01 liquidity took over. And now what you've seen in the last three months is that domestic liquidity
01:06 has completely taken over. In fact, the fact that SIP money is now moving into the mid-caps
01:12 and small caps, I think is itself an indicator as to how things have changed dramatically
01:17 in the last few months. And I just want to believe that India continues to be in a sweet spot.
01:23 I think we have done a little ahead of ourselves. And given this correction, excuses are being put
01:29 out from the global markets. But I don't think global markets really have a bearing because when
01:34 I look at India and I compare it with the rest of the world, we track the MSCI indices. So if you
01:39 actually look at India versus the world, India versus EM, India versus the developed world,
01:43 we are still in a major uptrend. So I just want to believe that the overall trend is intact.
01:48 I don't think global markets will play a very important role, whether it's Forex with this
01:52 commodities or whether it's even the dollar index. I know it's rallied a bit in the last
01:57 couple of weeks, but I don't think it's really going to have an impact. And despite the downgrade
02:02 news that came from the US, if you actually look at the Dow and the S&P 500, they have held out
02:07 well. It's really not triggered any major correction there. So I think what's gone through
02:12 in the last two weeks is very normal. I think this is a great buying opportunity. There are
02:17 no signs of topping out. And I think very soon, you should have Indian markets get back on track,
02:22 and hopefully we scale that level of 20,000. However, as I've maintained my stance since the
02:27 beginning of the year, this is not about the index, because the 10% move on the index is
02:32 these days close to 2000 points. And we don't get that kind of visibility because there are just too
02:37 many dynamic factors that keep hitting us from time to time. So this is a sector specific,
02:42 stock specific, theme specific market. If you are in the right themes, if you are more committed
02:47 to the broader markets, you will do well over the medium term. Such an important statement of fact
02:53 and confession, if you will, that there are too many dynamic forces in a 2000 point move on the
02:57 Nifty. And therefore, maybe it's difficult to gauge that. Gautam, thanks for putting that out.
03:03 Just one quick question. I know you mentioned that global factors may not impact the markets that
03:07 much. Still trying to understand before we get to some specific themes, because I heard you say
03:11 that it's better to be in the right themes. But what are the charts of the dollar index telling
03:19 you? Do you think it is headed higher? See, I've been tracking the dollar index for a couple of
03:25 decades. And I think what I've realized is that in patches, it has a great correlation. And then
03:29 there are patches where there is just no correlation, even though we keep looking at the textbooks
03:34 for correlation. I think we've come to that point in the last two and a half months, wherein
03:38 liquidity has completely taken over. So some of these factors are just not important.
03:43 You know, till a couple of weeks back, global markets were doing nothing. You look at Europe,
03:48 look at Asia, look at the US. And it was just the Indian market which was doing so well.
03:53 Now, you want to attribute that to fundamentals? Well, yes, you can do that. But the big debate,
03:58 once again, is really liquidity versus fundamentals. And as a chartist, I want to
04:02 believe that liquidity is best understood using technical analysis. So coming back to the dollar
04:07 index, yes, it's rallied to that level of 103. There is potential for a rally towards 105, 106.
04:13 But does that mean that it's going to impact equities? I don't think so. There is a lot of
04:18 talk around interest rates in India and around the world, whether enhanced interest rates could
04:23 lead to money flowing out of equities and moving into debt. I think we are beyond that. And unless
04:29 you see a major, major rise, I don't think money is moving out of equities anytime soon. Because
04:35 at least the Indian investor has realized the advantages of long-term investing. And I don't
04:41 think that's running away anytime soon. OK, music to the ears. Let me start off with
04:48 a subset of the markets, which is the bank nifty. I know you mentioned that don't look at the index,
04:53 look at pockets. I'm trying to think of banking as a pocket and asking you that relative to the nifty
04:58 as well, the bank nifty has been rather sluggish. The HDFC Bank stock, Gautam, is testimony to the
05:04 fact that the market is hands off because you just don't see that moving despite all the promises
05:09 pre-merger of what the merged entity could do fundamentally. What's happening here?
05:14 You know, whenever something becomes overanalyzed in a crowded trade, it generally takes a lot more
05:21 time to come back in form. I think that's exactly what has happened to HDFC Bank because there was
05:26 so much talk around the stock doing well. And till a month back, it was actually trading at lifetime
05:31 highs. But post this demerger, I think there's been this a little bit of profit booking that has
05:37 taken place. And it's really become an elephant. So it's very difficult for this stock to run.
05:42 It has such a big bearing on the nifty and the bank nifty now. And because of that, I think
05:47 the indices, the headline indices have been under pressure. But coming to the bank nifty, I think
05:53 the problem in the market in the last few weeks has been leadership because banks have not done
05:57 well. IT was in a difficult space, but then it's come back well and it's helped the market
06:01 sustain above support levels. Reliance has been at the upper end of the range.
06:05 So because there was no leadership, what you notice is that the mid caps and small caps did
06:10 very well all along. And the headline index, the nifty, the bank nifty, and the NSE next 50
06:16 did not do anything special, which is absolutely OK. Honestly, no complaints. We like that kind of
06:21 a market because it is a stock picker's market. But I think the bank nifty is very critically
06:26 placed around this 43, 500, 44,000 zone. I want to believe that it will bottom out somewhere in
06:31 this zone, turn around, and eventually go back to 47, 500 to 48,000. So I would be bullish on
06:38 bank nifty as a whole. And I think within the banking space, we love the PSU banking space.
06:44 In fact, in the last three weeks, the PSU bank index is still hugging the 52-week highs. And I
06:49 think it just has great potential to go up big. The smaller PSU banks have anyway done well. I
06:54 think SBI, Canberra Bank, BOB, with great results, I think they'll all turn around. So if you have to
06:59 play banking, rather play PSU banking for the next three to six months. The SDFCs, the ICICI
07:05 banks of the world are typically Rahul Ravid's in your portfolio. They'll not go down much,
07:10 but they will keep picking for you from time to time.
07:13 SAURABH MADAAN: Got it. Now, I want to get your views out from you. I've asked a few
07:18 questions of my own. I've heard you say that thrice in this interview that it is good to be
07:25 sector-specific. You love these markets because it is a stock-pickers market. What, to your mind,
07:30 Gautam, are the strongest pockets in the market currently?
07:33 GAUTAM RAJAN: Well, I think there is frantic sector rotation and theme rotation that we've
07:39 seen in the last four or five months. I think it's amazing how the market sees that rotation
07:45 from time to time. It's almost like a 4 into 100-meter relay at the Olympics, wherein the
07:50 betan is passed. When one athlete is tired, it just moves on to the next athlete. And that's
07:56 really what has happened in the last three months, which is great to see. In terms of leadership,
08:00 I think we've all seen what pharma has done and the capability it has for the medium term.
08:04 It was in a two-year-long bear market. It's come back very strongly. I think it was under-owned.
08:10 And now there is a lot more commitment. Smart money is very active there. And our working
08:15 target for the pharma index is about 17,000. So there is easily 10%, 12% upside. The other sector
08:21 that we really like from these levels is metals. So stocks like GSW Steel and GSPL have done well.
08:27 We like the overall metals index setup. Unfortunately, the technicals and the
08:31 fundamentals don't seem to be in sync because fundamentally, you cannot make a very strong case.
08:36 But chartically, I do believe that metals could be the surprise winner over the next three to six
08:42 months. So all the top stocks, right from GSW Steel to SAIL to Tata Steel, Nalco, we like all
08:48 of them. And we have been recommending them to our subscribers. And finally, I think the IT space. I
08:53 think IT looks very interesting to me. I know there has been so much debate around it. There
08:58 was a lot of negativity around it till a couple of weeks back. But the way some IT stocks have
09:02 rebounded in the recent past gives me the conviction that bigger things are happening.
09:06 And it's been in base building formation for about six to nine months. So the potential is large.
09:11 3,100, 4,000 is the immediate working target. Beyond that, we are looking at 3,300, 5,000.
09:16 And I think investing in stocks like PCS and Tech Mahindra and Wipro, you cannot be losing money
09:22 at these prices. Because at 1,900, 6,000, 7,000 index, I think the risk management and potential
09:28 downside in each of these sectors, which I spoke about, is very important. So pharma, IT, metals
09:33 clearly are top of the pack, along with banking, which I think could surprise from these levels.
09:40 PSU banks in particular, interesting. Today on Trade Setup, I spoke about IT pack. Because of
09:45 the kind of order of wins that are coming through as well, Gautam, people were citing that weaker
09:50 pockets of demand. And we're seeing large companies as well announce multi-million dollar
09:54 deals, in fact, multi-billion dollar deals, if you will. So that is a good thing.
09:59 You know, your answer on metals is interesting. Because if that were to play out,
10:03 you'd probably see China give some stimulus in some fashion. Fundamentally, I'm saying,
10:08 let's see if that works. Now, a couple of questions on themes which have
10:14 been the retail traders' favorite or the retail investors' favorite as well, Gautam.
10:19 One of them is this whole PSU manufacturing theme. And railways is right up there,
10:26 but a bunch of others too. And if everybody thought their moves are done, results came out,
10:31 and we saw a JWL or a Sepco move up. The others have kind of played to the fore. The auto ancillary
10:37 companies which are getting railway orders are also doing well. Any thoughts on this,
10:41 if you've looked at them? I think railways are a little overdone,
10:46 to be honest, to be looking fresh at these prices. See, at Goldilocks, we cover 81 custom indices. So
10:53 indices that the exchanges do not provide, we like to pick them by making our own sweet indices. And
11:00 that's how we identified railway and for that matter, even auto ancillary. It's done well for
11:05 us. And for that matter, even defense. But I think at these prices, it's run ahead of itself. I think
11:10 they are in fraud territory, you know, if I may put it that way. But as a long term investor,
11:17 you want to stay invested. But definitely, there is no case to be buying these stocks at these
11:22 prices. But the other thing that we continue to like is defense. So in defense, again, you have
11:26 about six or seven stocks that would stand out really well. So defense can be bought even at
11:30 these prices. But overall, you spoke about the overall PSU theme. You know, it's coming back
11:35 after almost a decade. And I've been such a big bull on the entire PSU basket for almost a year,
11:41 year and a half. And the kind of breakout that I've seen on the charts, I think there is potential
11:46 20% upside on the PSU index easily from current levels, something which I do not have visibility
11:52 for many other sectors in the market. So PSU, I think as a theme will continue as an overall
11:57 basket, you know, it could be defense, railway, manufacturing, power, infrastructure, I think
12:03 everything is looking pretty solid on the charts. And the beauty is along with dividend, you know,
12:09 the dividend side of things, you have capital appreciation running hand in hand. So it's a
12:14 wonderful place to be in on PSC. And I think it's a theme which your viewers should continue to look
12:19 at and buy on every day, you know, like the current market. Yeah, viewers, readers, all of them will
12:25 benefit from this, Gautam for sure. A follow up question. You also probably devote some piece of
12:37 advice to contrarian bets or dark horses, which may not necessarily make the largest move in the
12:44 next one week or one month, but are looking turnarounds or looking with something which
12:49 has got very great potential. I'm presuming here, but I'm presuming it's a safe presumption. I would
12:54 love to understand from you Gautam, does anything fall in that kind of a bucket?
12:59 Yeah, I think cement could be once, if you want to really call it a dark horse,
13:05 see, I've been a big bull on the entire real estate space. I do believe we've discussed this
13:10 last year also that the real estate index broke out after almost a decade of consolidation.
13:15 If you look at the 2007 prices, and look at the prices today, many real estate stocks are far,
13:20 far away from their highs, despite the big rally of the last three months. So it's about the
13:25 context, it's about the perspective, do you look at it from the recent lows? Or do you want to look
13:30 at it from the 2007 highs? So real estate, I think is a big proxy that's going to play out over the
13:35 next couple of years, I should say, and stocks like DLF, you know, could potentially appreciate
13:39 anywhere between 30 to 50%. So the point which I'm trying to make is real estate and real estate
13:44 proxy, which is clearly cement out there is a space which I feel could be a dark horse and can
13:49 be committed into even at current levels. So pretty much all the stocks in the cement space,
13:54 right from Ultra Tech, which has been a favorite to Ramco to India Cement, I think all look super
13:58 solid on the charts, and I think can be committed into even at current levels. And real estate
14:03 itself, you know, this recent correction is such a great opportunity. A stock like DLF has corrected
14:08 about 10% from the recent highs. So DLF, Oberoi, Brigade, Prestige, lovely charts that are from
14:14 medium term, long term perspective. Got it. Gautam, now your basic thought is that,
14:20 after the, by the way, so two questions rolled into one. One is, at the start of this interview,
14:25 and maybe I should have asked you this then, but nevertheless, you mentioned that this is a
14:31 good correction which has come about, and very soon we'll be back on to winning ways.
14:36 My question is, is it possible to, maybe not predict, but at least hypothesize what could
14:43 the levels be from where Indian markets could turn around? And what are the levels that people
14:47 should keep in mind? Maybe they don't turn around exactly there, but slightly lower. That's fine.
14:51 But two more importantly, if the markets were to do as you are saying, are there pockets which
14:57 will actually relatively be sluggish to this upcoming up move in Indian equity markets?
15:04 Well, Neenak, it's my job to give out levels. It's my job to try and foresee the future.
15:10 I think that's what we try to do based on technical analysis. And I want to believe that
15:15 the market is, will try to bottom out at two numbers. So the first number is 19,300, which is
15:21 where we are right now. And that's the number from where we have rebounded a couple of times
15:25 in the last two weeks. So if this is a market which rebounds from 19,300, then everything gets
15:31 back on track immediately, immediately meaning in the next three, four trading sessions.
15:35 If 19,300 does not survive, then possibly we go down to 18,900 because the previous stock,
15:42 and that's where the strongest supports are. So any which way as a medium term investor,
15:47 you should not wait for the two numbers. You have to be a buyer right from current levels,
15:50 which is around 19,300. And I don't see the market going anytime soon below 18,900. So these are the
15:57 two numbers which we like. And if the turnaround happens, I think that the four or five pockets
16:02 that I mentioned are the ones that should do well. The ones which we are not liking are the big
16:07 winners of the last three months, which is FNCG, auto, and capital goods. They have been our
16:12 favorites. ITC, we've discussed multiple times in the last two years, during the interaction of us.
16:18 But I think ITC, we've let go of it. 10, 15 days back, we actually let go of it. And we added some
16:23 other stocks in our G12. So the poster boys of the last four months is where we are not focusing
16:31 right now. SAURABH MADAAN: Wow. OK. And it's interesting, Gautam, that charts show this.
16:36 I mean, FNCG is fine, understandable. Maybe fundamentally, inflation worries come back,
16:41 so on and so forth. But capital goods, everybody swears by that. And the commentary from the
16:47 managements are so strong. You still believe that they will be sluggish relative to the market?
16:52 GAUTAM RAJAN: I'm talking about they being sluggish from a short-term perspective.
16:57 Everything has its cycle. So capital goods has its wonderful cycle over the last one year.
17:04 There is room for some consolidation, some correction. It could be sideways in nature.
17:08 It could be corrective in nature. And towards that correction, we're looking at much greater upside.
17:13 So if you ask a two-year, three-year, five-year view, I think there is no way that you can avoid
17:17 capital goods from your portfolio. But if you're looking at short-term gains, it's not the space
17:22 to be. SAURABH MADAAN: Yeah. I'm glad we got that clarification as well, Gautam, because a lot of
17:26 people would view this as an indication even in the long-term portfolio. So I'm glad we got that
17:31 clarification too. But thank you. This was lovely. I'm sure it's a breath of fresh air to bulls who
17:37 have been worried over the last few days hearing all about the dollar index, the SPX, and whatnot.
17:41 So good to hear this view as well. Thanks for taking the time out, Gautam.
17:43 GAUTAM SRIRAMAN: Pleasure, Neeraj, as always. SAURABH MADAAN: Yeah. The pleasure is ours.
17:47 And viewers, thanks for tuning in to this very important edition of The Talking Point.