Real return going to be again in broader markets: Gautam Shah

“I think one needs to understand that the last 18 months, which was a pretty challenging period because the Nifty broadly traded in that 16500, 18500 kind of a band, it was a market where large caps stood out,” says Gautam Shah, Goldilocks Premium Research.

We have seen a 10% rally on the Nifty and 15% rally on the Bank Nifty. Is this as good as it gets for the summer rally of 2023 or this party will continue?
Well, I think people are looking for a reason to celebrate the Nifty hitting lifetime highs but honestly, I think for the last six weeks, there was a celebration every day at the markets. Given the kind of strength that you see in the broader markets, Nifty, Bank Nifty and some of the top sectors have just been quite irrelevant. I think one needs to understand that the last 18 months, which was a pretty challenging period because the Nifty broadly traded in that 16500, 18500 kind of a band, it was a market where large caps stood out. That is the space where there was a lot of outperformance and broader markets actually lost a lot of ground. You know, till six months back, I think 60% of the market had lost about 40% from the highs.

So that is the kind of extreme statistics that we were working with and therefore, there was obviously room for a lot of recovery. And if you actually go by the ratio charts, which is the mid-cap index divided by the Nifty or the small-cap index divided by the Nifty, that saw a massive breakout a couple of months back.

So really, the trade has been outside of the top 100 stocks. And I think this is going to continue for the rest of the year. Nifty hitting lifetime highs or going higher, I think, is just going to be a formality. I do not see the index running away from current levels.

We are a little overbought at these levels. 18,900, 19,000 is a point of resistance. So I do not think large caps are going to do anything special but this mid-cap, small-cap rally, I think, is going to continue.

And there will be internal corrections along the way. In fact, what I have seen in the last three months really reminds me to that 2003 period, which I am sure you also witnessed, wherein the index doubled in value, just gradually going up every single day. So focus on stocks, ignore the index, would be my takeaway.

It actually went up more than double. I think it started from 4000 and then topped out closer to 20,000 or 5000, it started closer to 20,000. So what to your mind is the starting point for this index because we have been asking everybody on the channel that Sensex, when will it reach 1 lakh?
It is quite irrelevant. I think these are fancy numbers, which people like to keep talking from time to time. I think the idea is to create wealth. The idea is to be in good stocks. The idea is to be in structural stories. The point about 2003, I was referring to just 2003, wherein the 3000 Sensex became 6000. And then obviously it moved up seven times over a period of 2003 to 2007, 2008. But I do believe that at levels of 19,000, I think the large caps in the index is richly valued and you do not have a global environment where everything is doing well. India has stood out. US markets have started to do well. It is only the NASDAQ, which has actually gone up. Look at rest of Asia. None of the markets apart from Japan have done very well. European markets have just stabilized around 52-week highs. So it is not a global bull market as such. It is more like an Indian bull market backed by domestic liquidity and aided by foreign liquidity, which has really come in in the last one month. And I think this trend of being stock specific will continue based on the ratio chart analysis, which I just put out.

What is your take regarding IT because the Street is divided whether it has bottomed out or not? What does the chart pattern tell you?
I think it has bottomed out. I think I am very clear that for almost 15 months, this index went through a large correction after the 2020-2021 rally and it went through a price correction initially.

And I think the last three or four months it has just been pure top quality time correction. At a level of 18,900, you do not have too many sectors or stocks in the market which give you a good risk reward to take a trade or in fact, investment bet. And I think IT is right up there.

So between now and the next maybe till Diwali, I would actually bet for IT, pharma, and metals, three of the underperformers of the last six months to actually do well and take the markets higher. Not to ignore the mid-cap and small-cap, which obviously are in a zone of their own so I actually like all the top IT stocks, whether it’s HCL Tech, TCS, Wipro, Infosys, pretty much in that order. And I think there is 15% upside on the index and much greater upside for stocks.

But do you think we are in that kind of a market where the traditional heavyweights will continue to lag, not much participation coming in from HDFC Bank, from Reliance or for that matter, even SBI, as compared to what is happening outside of these indexes?
I think that is exactly what has happened. These large-cap names have really become elephants, and it is very difficult for them to now run. So that is probably the reason they will see their gradual move up from time to time. And the reason for Nifty’s underperformance is because HDFC Twins, ITC to a certain extent, Infosys, TCS, Reliance, these top six, seven stocks have just stopped moving at a rapid pace. And I think this trend will really continue unless you have some major trigger. And let us not forget, you have the earnings season coming in next month, you have the general elections, some state elections coming up later this year. All of these factors will play on the index but not on stocks.

You said how, let us say a figure of 100,000 on Sensex, etc. is theoretical but what is your own analysis telling you where the Nifty is headed by the year-end? Any number, any target in mind?
Well, it has been quite crazy in the last 18 months. The moment you would have given out a bigger target, you saw that 2000 point fall on the Nifty and vice versa. It has been like a pendulum in the last 18 months. And it is the kind of world where you cannot look too much into the future. Yes, it is all good to talk about structural story, five-year story, 10-year story, it looks good on paper, no doubt about it.

But not every investor in the market can really handle that kind of patience, which today’s world provides. But still, if you want me to put out a number, I think my working number on the Nifty has been 20,400. And I think maybe, before the general election results next year, we should get to that number. But the problem is, it is not big in percentage terms. I think the real return is going to be again in the broader markets.