'Nifty likely to be near 12,000 by year-end; prefer midcaps to largecaps'

The Nifty took out the 11,000 mark on Thursday, a level it last touched around the Union Budget 2018.

"The market has climbed all wall of worries. We always believe that there was consolidation after hitting record high levels and market kept support levels around 10,500-10,600 levels," Gautam Shah, Associate Director & Technical Analyst, JM Financial told CNBC-TV18.

The Nifty after correction of more than 10 percent rebounded more than 9 percent to trade above 11,000 levels. Broader markets also corrected sharply with the Nifty Midcap falling around 15 percent but now rebounded, which suggests that the pain is over now, Shah said.

Overall the market faded FII outflow, monsoon below normal levels in June, rupee depreciation, sharp rise in crude oil prices and midcap carnage.

Within that the market managed to hold support levels followed by recovery, which indicated that the frontline indices are set to attain higher levels and the gap between largecap and midcap indices will minimise shortly, Shah said.

He feels the breakout has already happened in the Nifty index that is expected to test 11,300-11,400 levels in next few weeks and by the end of 2018, the index may move close to around 12,000-mark. "Midcap recovery is also on cards."

He sees little bit of time for broad-based rally. "There was a lot of complaint about portfolios having exposure to midcaps not doing good. Nifty Midcap index after rallying 60 percent from 13,700 to around 22,000 levels in 2017 saw 18 percent drop and lot of speculative stocks saw much decline but now I am of the view that midcap pain is behind."

Shah feels 18,700 is likely to be a strong recovery point for the midcap. "If it crosses that level then it will be back to 22,000 levels soon as fall has already been arrested in midcaps."

Technical analyst also sees a great opportunity to buy if Midcap index crosses 18,700 levels. The Nifty Midcap index is currently trading around 18,300 levels.

Among midcaps, one needs to buy relative strength stocks which traded sideways followed by 10 percent correction, he advised.

At 17,800-18,000 levels, midcap index seems to have potentially bottomed out, so midcap makes sense to buy instead of largecaps even though the Nifty trades around 11,000 levels.

Crude

Nifty held its support levels of 10,500-10,600 in recent correction and rangebound trade despite NYMEX crude hit $75 a barrel levels, he said.

According to him, the crude could have topped out around $74-75 levels and is expected to trade in a range of $62-75 in medium to long term. "Dollar and crude could be rangebound from hereon which could be help Indian markets."

IT

IT stocks did exceedingly well so he does not advise fresh long. "Now technology is hold and one should't buy largecaps but one can look at select midcap IT stocks."

Banks

He feels the banking is the one sector that is going to lead the market. "27,500 is the near term resistance for the Nifty Bank, once this crosses it may hit 30,000 levels also."

Gautam Shah is extremely positive on the banking sector as Nifty Bank created strong base at 26,000 levels. "We prefer private banks. If PSU banks started doing well then there also we see buying opportunity."

Oil & Gas

Not only RIL, but also HDFC Bank, HUL, HDFC and ITC all are rock steady, he said. "I don't see any reason why they can't do very well. In fact, SIP and FIP money has been chasing these stocks."

He is positive on oil & gas space as the sector is coming back to greater highs from lower levels.

Rupee

There has been a bit of connection in rupee and equity. According to him, the rupee seems to have topped out at around 69-69.5 levels.

So the stability in rupee is a great news, he said.