Just structurally, where do you think the market is going to move?
It was a bit of a choppy week. The start of the week and the end of the week was exceedingly strong. Previous week, the handover for the markets was a bit sombre. We started off the April series on a bit of a sticky wicket. This week it was more of a carry forward move. When you generally see a start of a fresh trend on the index, the first move is a bit difficult to try and catch because the markets are bit more sceptical on whether this is a start of a fresh move or whether the previous trend would probably repeat again.
But the kind of moves that you have seen for individual stocks and sectors in this week have been breathtaking. Just look at the way these metal stocks have charged up to a fresh high. Many of them are at fresh multi-year, multi-month highs. You will then have the rally trickling into so many of these other pockets as well.
PSU banking stocks have managed to show signs of strength. Bank Nifty traded exceptionally well on Thursday and it was a very strong move that came across for individual stocks like ZEE and
Two very important data points that were highlighted even last week; one, there was a huge amount of open interest addition on both the index futures that are on the Nifty and the Bank Nifty. When you see a proportion of almost a 25% jump on open interest on the Bank Nifty in a matter of three-four days, it means that the market participants are expecting that a much bigger trend could evolve on the index. What we saw in the previous week will probably be a start of a fresh uptick for the index. There is one more important technical indicator, which was an inverse head and shoulder pattern on the Nifty as well as Bank Nifty. On the backdrop of all these factors, sector churns, the risk-on mode coming back and the technical factors, I believe if on Monday we manage to see a follow through and see even a slight gap-up move, there should be a much stronger uptick next week than what we saw this week.
Where do you think metal stocks are headed from here?
I believe that this is a huge trend in the making where you have seen such a strong sector up move. The leaders in the largecap space are taking charge and leading from the front. The ones that have been tied to largecap names or the ones that have been a bit of underperformers are managing to show signs of strength yet again. This is like a typical sector move which you have seen time and again when a new bull market or a new uptrend begins into a space. I think metal stocks are showing exactly those kinds of signals.
Look at JSPL for example. It has been a stock that has just about gone to a different orbit altogether from the March 2020 lows. The stock has more than doubled and it is a largecap name. at current levels of Rs 840 or Rs 850 is now at a multiyear high. The all-time high levels for Tata Steel is at Rs 900-910 levels; so it is still almost 7-8% away from breaking past above its all-time high levels.
But look at the way these stocks have charged back again. Typically, the beta nature of the stock comes back and there are few sectors which we associate in terms of the high beta spaces and high beta characteristics; whether it is the likes of rate-sensitive banking or real estate. I think metal stocks, too, fall into that category. So the risk mode and the high-risk appetite is coming back when you see these metal stocks performing very well. When these stocks pick up a trend, when they give you a breakout, those breakouts tend to last for not just a longer duration of time, but the intensity of the breakout as well is quite spectacular. And we have seen that playing out for these metal stocks.
I believe a good approach would be to try and nibble into the metal stocks and focus more on the largecap names and then look at other potential candidates of breakout like SAIL and JSPL. That is the overall strategy I have been highlighting over time and I have maintained that stance that largecap names like Tata Steel and
should be the priority candidates followed up by adding something like SAIL and JSPL.
We have seen stellar outperformance by the broader markets. What are some of your interesting trading picks going into next week?
It is going to be interesting next week. I am selecting buy calls and I am going with a bit of a high beta over here expecting that the market momentum would continue next week as well. First one which I am suggesting is a buy on
. That stock was one of the few metal names that managed to give a very strong and fresh breakout in the previous week. I am expecting a strong follow through price action on JSPL; so buy with a target of Rs 388 and stop loss could be kept at Rs 357.
The second stock is very interesting. It is a buy on JK Tyres. Now the stock did exceptionally well in the late 2020 going into returns of almost 3x from its March 2020 lows. Somehow, in the last two months, the stock had gone into a bit of a sideways move. But I think Thursday’s price action indicates now that the stock has come past above its resistances and has sort of ended its correction. So I am expecting JK Tyres to be one of the few tyre stocks that could probably pick up pace yet again from the current levels. Buy with a positional target of Rs 132 and stop loss could be kept at Rs 113.