All eyes on banks! Here’ why Kotak Bank & SBI can give double-digit returns

Investors should continue to invest at regular intervals as there are a lot of stocks that are trading at long-term averages and should realign the portfolios at least twice in a year to adapt to the current market trends and demographics, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) The RBI kept rates on hold but assured that the GDP rate could well turn positive by Q4. But, history suggests that stock prices are relatively better predictors of future GDP’ than the other way round. What are your views?

A) Well, indices and stock prices always trade at forward-looking statements and guidance. The data points are encouraging in terms of macro data being expected to turn positive by the end of FY21.

The global surge in liquidity and stimulus measures by the government across the world would continue to aid positive momentum.

The festival season over the next few months in the domestic market has further renewed optimism among investor’s spurring growth in auto’s housing and consumer sectors.

Q) Nifty50 reclaimed 11800 while the S&P BSE Sensex rose above 40,000 in the week gone by. What led to the price action?

A) The positive global trends from the Federal Reserve, dovish monetary policy from RBI, strong results from TCS led to strong buying by FII’s investors during the week.

The Nifty50 closed at a 7-month high and gained by 4.4 percent for the week. In terms of index levels, we are still 4 percent away from the all-time high but in terms of market cap, we scaled an all-time high level to Rs.161 trillion pointing to a gradual economic recovery from the COVID pandemic.

Q) What are the important levels and events which one should watch out for in the coming week?

A) We continue to remain positive with intermediate resistance at 12,050-12,100 levels, being a round number and a lower top from where the sharp correction started in the last week of February 2020.

The quarterly earnings season has just started and the focus will be on individual results. On the downside, supports are at far away in the band of 11,400-11,450 levels being the last week close and band of averages.

We believe midcaps and small caps would outperform from current levels keeping the headline indices in a range.

Q) In terms of sectors, IT and Banking stocks remained top gainers. What led to the price action in this space?

A) The strong up move started with the positive announcements of buyback of shares of IT companies and later gained traction with earnings upgrade from TCS, positive management commentary further added momentum to the overall sector.

A dovish monetary policy from RBI in the latter half of the week surged the Banking sector to gain by 7.2% for the week. Housing finance companies also got a boost as RBI allowed HFCs to collaborate with banks for priority sector lending under the co-origination model.

Q) What should investors do --- Sensex touches Mount 40K while Nifty50 trades above 11800 levels? Time to put fresh money, hold for a dip or book profits?

A) Well, investors should continue to invest at regular intervals as there are a lot of stocks that are trading at long-term averages and should realign the portfolios at least twice in a year to adapt to the current market trends and demographics.

As the current up move is very sharp over the past 7 days some minor correction cannot be ruled out from higher levels.

Any decline towards 11,400-11500 levels would be a good opportunity to add longs for a higher target of 12,800-13100 over the next few quarters.

Q) There are 178 stocks above Rs 500 cr Mcap that are trading below 200-DMA despite strong rally seen in benchmark indices. There are 19 stocks that fell 10-50% since March (six months), and are also trading below 200-DMA. Does that mean that investors will be better off moving away from laggards?

A) There are always laggards with respect to the market movement, as few sectors which would lead the up move and then the rally gets broader-based and laggard stocks to catch up with the market momentum, but one has to be very selective in choosing the stocks from these sectors.

Q) Any 3-5 short term trading ideas for the next 3-4 weeks?

A) Here is a list of stocks for the next 3-4 weeks:

Bata India: Buy| LTP: Rs 1352| Target: Rs 1480| Stop Loss: Rs 1270| Upside: 9%

The stock has made higher bottoms in the past few weeks and is trading above its short-term averages confirming the uptrend from the current levels.

Stochastic & RSI on the weekly charts is also coinciding with our view, as both the indicators are in bullish mode. However, in case of a major decline, the multi-week support of 1270 will continue to work as the key support for the stock.

Kotak Bank: Buy| LTP: Rs 1320| Target: Rs 1500| Stop Loss: Rs 1230| Upside: 13%

The stock remained sideways after a sharp decline and the key technical indicator on the short-term timeframe have reversed from their oversold zone and gave a buy signal.

The long-term 200-week average is placed at Rs 1225 levels that would continue to act as strong support. We believe that the stock will utilize prior consolidation and will resume its up-move and that could lead the stock towards the recent high.

SBI: Buy| LTP: Rs 198|Target: Rs 235| Stop Loss: Rs 182| Upside: 18%

The stock reversed after forming a Double Bottom Pattern around Rs 175 and later it managed to recover partial losses of the week.

We believe that the stock will continue its up-move for the short-term, amid rise seen in Stochastic & RSI from their oversold zone. We believe that the current up-move will continue and the stock will test its medium-term resistance zone.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.