Risk-reward not favourable in PSU stocks at current levels, says Aamar Deo Singh of Angel One

Are you surprised with the start of the September series considering all the negativity of the August series?

Markets are always filled with surprises but if one is on the right side of the trend, the surprises could be pleasant. Markets were in a consolidation mode, post the sharp rally witnessed across the board and cutting across sectors. Even most of the technical indicators continued to remain bullish despite the correction witnessed in August, reflecting the inherent strength of the market. Be it the broad-based Advance-Decline Ratio which clearly shows that bulls are in control or 84% of stocks which are now trading above their 200-Day Moving Averages. This clearly indicates that the rally was a broad-based rally.

Also, it has been an opportunity for investors across multi-caps to seize upon this opportunity. But yes, in any market scenario, one needs to be alert, prudent while at the same time, scout for opportunities.

While Nifty and Bank Nifty ended the week with gains of 2% and 1.55%, respectively, what lies ahead for them next week?
Nifty as well as Bank Nifty are trading in a bullish terrain from a longer term perspective. However, in August, the major indices and primarily few of the heavyweights witnessed profit-booking, leading to a correction in these two indices.

Nifty has formed a very strong base around the 19,200-19,300 zone, whereas there is a psychological and technical resistance zone on the upside. Meanwhile, the key resistance zone for Bank Nifty is seen around the 45,800-46,000 zone and support for Bank Nifty is seen around the 44,000-44,200 zone.

Markets will be influenced by global sentiments, and concerns with regard to rising crude price and weakening Rupee when they reopen next week. All in all, we will witness heightened volatility in coming weeks, so investors need to be prepared for the same.Broader markets seem unstoppable even now as their week-on-week gains continue, defying the overall cautionary take from analysts. What should be the strategy this week?
Given the fact that the majority of stocks are trading above their 200-Day Moving Average, speaks volumes in itself about the strength of the current rally. Be it midcap or small cap, the rally has been spectacular across sectors, with many stocks generating returns in excess of 100% YTD. Investors who had the conviction to enter these stocks should definitely look at locking some of the gains as at times, paper profits just remain like that. So till such time, we do not see major signals indicating a trend change, being on the long-side with training stop-loss should be the way forward.

A wise man once said “Sell, Regret and Grow Richer.” What he meant was that when one makes superior returns, one should look at booking profits as well, unless one has decided to hold onto the stocks for a minimum of 3 to 5 years. In the week ahead, dips can be used as buying opportunities, but one needs to stay cautious as markets have recently retreated from their all-time highs.

The certainty in direction has brought volatility down with India Vix down 6% in WoW. How should investors and traders approach the next week?
India VIX staying below the 12 mark clearly shows that investors are comfortable with the current market moves, and most of the negatives have well been absorbed by the market. However, only in case there is some major unexpected negative flow, that could play spoilsport. Even higher crude prices have not dented the enthusiasm in the markets, clearly reflecting that the inherent structural strength of the market remains intact.

Investors are however advised to not let go of their guard and be prepared for bouts of increased volatility in coming weeks.

How do you see the prospects for real estate sector and PSU stocks which have had a dream run, more so the defense and shipping companies?Investor interest seems to be insatiable in PSU stocks, be it defence, shipping or even banking. Many of the PSU defence and shipping stocks have turned out multi-baggers, be it BEL, BHEL, Coal India, HAL, NHPC, NTPC, PFC, REC, Mazagon Dock, to name a few. Shipping, defence & power stocks too have given investors a very good reason to smile. Even real-estate stocks have had an exceptional rally, to say the least & investors should look at booking part profits in these stocks. At current levels, fresh entry might not work in favour of proper risk-reward, so rather one should wait for correction, to look at fresh entry.

Among the top performers were MMTC, IRFC, and Cochin Shipyard, while Data Patterns and EIH were the top losers in the Nifty 500 pack. What should investors do?
The rally in MMTC, IRFC & Cochin Shipyard has been nothing less than phenomenal, with these stocks rallying 50%, 38% and 33% respectively in the past week. Investor interest continues to remain high amongst PSU stocks, with dream returns. Investors should definitely look at booking profits at current levels and those with a higher risk-appetite, can trail their profits.

Data Patterns and EIH on the other hand, witnessed sharp selling, down 12% and 7% respectively. Both are witnessing profit booking post the spectacular rally witnessed in these two stocks over the past few months. Investors need to understand that not every level is a level to buy and not every level is a level to sell, meaning, one should look at the potential risk-reward scenario before entering any stock.

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