Nifty likely to remain volatile in this expiry week; stay away from small & midcaps

With May F&O expiry coming this week coupled with a mixed set of global and domestic cues, we can expect a volatile trade in the coming week, Dinesh Rohira, Founder & CEO, 5nance.com, said in an exclusive interview with Moneycontrol’s Kshitij Anand.

Q) The Nifty50 rose marginally for the week ended May 25, 2018. It managed to close above 10,600. Do you increase volatility amid F&O expiry in the coming week?

A) Despite a strong breakdown below the crucial level of 10,500 on Wednesday, Nifty managed to recoup its early losses in the two consecutive sessions.

The index took a strong support from its 200-days EMA level. On Friday, Nifty made an intraday high-low of 10,628 and 10,524 indicating divided sentiment in the market.

Thus, with May F&O expiry coming this week coupled with a mixed set of global and domestic cues, we can expect a volatile trade in the coming week.

Further, as index managed to bounce back in the two session from a week’s low level, the index is likely to witness a profit booking regime due to lack of any positive trigger so far.

It will be advisable to continue with the specific stock selection with a positive momentum for a fresh long position and a strict trailing stop-loss.

Q) Modi govt will complete its 4 years on 26th. How do you see the journey of the last 4 years and how does the next one year of the govt likely to pan out for markets?

A) Since taking over the office on May 2014, Modi government has remained as a pro-reformist institution across the period to attract global investors in India.

The relaxation or alterations of various FDI policy and upgrade in World Bank’s ease of doing business are the accolades achieved in the last four years.

Further, landmark tax reforms with the rollout of Goods & Service Tax, and demonetization exercise on November 2016 in its effort to curb unaccounted money was a genuine step taken by Modi government to create better India.

However, given a recent upsurge in crude oil price coupled with the weakening of the Rupee, the market is likely to monitor the financial health of the nation.

With adverse effect on current account deficit and also on fiscal slippage, it is likely to put pressure on Modi government ahead of general election 2019 and thus keeping the market on the kneejerk action.

Q) Plenty of stocks hit fresh 52-week lows this week instead of 52-week high. Do you think these are stocks which are carrying the momentum and investors should ideally book profits or stay away from them?

A) The earnings growth for Q4FY18 has been lower than what was expected with the majority of companies reporting below estimated earnings. Banking segment alone reported a loss worth of about Rs 35,000 crore in Q4 on new provisioning.

Further, a valuation concern in mid and small cap companies have dented the growth trajectory in companies as it continues to report subdue earnings.

Therefore, it will be advisable to follow with fundamentally driven companies begged by earnings visibility and use the short-term dip as a buying opportunity.

However, stocks with no buying story or lacks a rationality of future growth, it will be prudent to stay away and focus on select-stocks.

Q) What is your call on smallcap and midcap stocks? Should investors stay away or just book profits on rallies?

A) The valuation concerns continue to exist in this space after a staggering upsurge witnessed in the last year which was ahead of its fundamental in most cases.

Further, a dented growth in current period along with repositioning in the portfolio is going to put pressure on small & midcap stock in coming period.

Now, with the major election nearing its deadline, this space is largely expected to witness volatile momentum. Therefore, an investor hunting to capitalise on a short-term basis should re-approach there strategy, and ideally, they should stay away.

However, a long-term investor can continue to hold quality stock from this space in a portfolio with lower allocation and use any downward swing as value buying.

Q) Top 3-5 positional call which could give handsome returns to investors in next 1 month?

ITC: Sell | Target: Rs 250 | Stop loss: Rs 285 | Return: 8%

Just Dial: Buy | Target: Rs 575 | Stop loss: Rs 480 | Return: 13%

Jain Irrigation System: Buy | Target: Rs 123 | Stop loss: Rs 94 | Return: 18%