Gautam Shah feels Bank Nifty could drop even up to 17,000 levels if weakness continues

Banks that led the bull market over the last five years are now taking the market down as unfortunately, 30-35 percent of weightage in Nifty is by banking stocks that are still looking very negative on medium and long term charts, said Gautam Shah, Founder and Chief Strategist at Goldilocks Premium Research in an interview with CNBC-TV18.

Shah was the first one to call the decline and subsequent recovery in Nifty 50 where he believes 8,820 is the crucial level on the lower side.

Banks clearly underperformed the benchmark Nifty 50 during the recent sharp sell-off as well as in the recovery that followed.

Bank Nifty plunged 45 percent against 37 percent fall seen in Nifty 50 during February 19-March 23 period when the maximum sell-off had taken place globally due to COVID-19 crisis and FII outflow.

Gautam Shah

Founder and Chief Strategist|Goldilocks Premium Research.

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However, while the Nifty 50 has recovered 21 percent since then, Bank Nifty has gained 17 percent.

Shah feels many of the topline stocks in Bank Nifty are going to make lower lows.

"We have seen its underperformance to Nifty50 in the last 10 days. Nifty50 came back close to 9,400 levels but Bank Nifty did not get past its mid-March high of 21,500 that is a clear indication that the weakness will actually trickle in from the Bank Nifty," he said.

Gautam Shah expects the Bank Nifty to fall towards 19,500 levels in the immediate. And if that gets violated then one could see the drop all the way to 18,300 and possibly even 17,000, he feels.

Meanwhile, pharma stocks have been the biggest performers in the current recovery with the Nifty Pharma index itself surging over 46 percent.

"It is clearly a shift in the stance which a lot of market participants have taken. That is probably the reason why the pharma is doing so well," Gautam Shah said, adding pharma has come back after the three-year bear market where the index has lost 50 percent in its value.

While the index has already rallied 3,000 points from lows of 6,500, if it were to close beyond 9,500 which is looking like today then it could open up another 1,000 points on the upside towards 10,700, he feels.

And because this is safe-haven buying taking place, it can carry on for many days and many weeks, he said.

"Actually, if we see the set up apart from pharma and select FMCG stocks, nothing in the market which has the kind of setup that warrants a buy," he added.

Gautam said IT has also seen a nice recovery from lows and looked topping around 13,000-13,500. "We expect the index to reverse as well."

On the trading front, he said, "Markets are volatile, you will get your usual 2-3-5 percent dips from time-to-time. But this is not the time to be chasing stocks, so at any point of time, you get those stocks on dips that one could buy into."

"Because we are looking at much much deeper targets into the next many days and many weeks for market, do not look at pharma from a day to day perspective, it might not give you a great return. But if you have a 3-6 months timeframe then it could still be a good buy," he added.