Laggards are trying to catch up industry leaders in terms of price action; big bull cycle ahead for pharma: Umesh Mehta

Mr Market is likely to witness some amount of buying in the lower order stocks implying some sort of a catch-up rally. In fact, industry laggards are now trying to catch-up with the industry leaders in terms of considerable price action, says Umesh Mehta, Head of Research, Samco Group said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) Nifty lost momentum in the second half of the week as it witnessed profit-taking close to levels of 13000. What led to the price action in the week gone by?

A) The week post the festival season began with a huge gap-up opening on the back of positive international clues. But, soon the optimism faded and fears of a resurgence in coronavirus cases, power tussle in the US, and high valuations led to a mildly positive end to the week.

This indicated that optimism has reached its peak at least from an intermediate point of view. Markets are respecting the levels of 13,000 which are acting as a strong hurdle to cross.

Q) F&O expiry will keep things volatile in the coming week. Any other factors which one should watch out for?

A) India Inc’s quarterly results have largely concluded and bourses are likely to keep an eye on the coronavirus cases, international clues, and FII inflows in the coming week.

Any positive development on the vaccine may fire up the global markets and will be watched out for.

Q) What are the levels which one should track in the coming week? Important support levels in case Nifty starts to head south and what could pose as stiff resistance on the upside.

A) Nifty 50, after a swift rally, is consolidating around the resistance of 13000 which is an important level from the market as well as option writers' perspective.

Declining volumes, receding velocity, and a larger number of stocks in F&O ban are all hinting at a correction in the benchmark index very soon at least till its short-term support at 12600.

The Nifty has started facing resistance at the rising channel visible on the weekly chart and might continue to struggle going ahead as it lacks participation from the top index movers like Reliance, FMCG, and IT stocks.

Q) What should be the strategy of investors for the coming week --- buy on dips, or sell on rallies or just stay put?

A) Mr Market is likely to witness some amount of buying in the lower order stocks implying some sort of a catch-up rally. In fact, industry laggards are now trying to catch-up the industry leaders in terms of considerable price action.

This process may continue since markets have formed an intermediate top and are likely to witness a correction in front-line stocks. Investors may look to book profits at current higher levels and wait for a correction before buying.

Q) Top 3-5 trading sessions for the next 3-4 weeks?

A) Small and Midcaps may witness some amount of buying implying a catch-up rally, however, eventually this may too phase-out. Investors can consider accumulating good quality IT and pharma names from the current levels since they have corrected in the past few weeks and have a big bull cycle ahead of them.