In an interview with ETMarkets, James said: “April has been a positive month for small-caps and mid-caps. In the last 7 years, 86% of the time Smallcap250 index moved an average of 6% in April while 71% of the time Midcap250 index moved an average of 5.6%” Edited excerpts:
A truncated week comes to an end and bulls remain in control for most of the day. What led to the price action?
While the low base, going into the earning season, gave the impetus to chase prices higher, the jailbreak from a frustrating trading range added breadth and depth to the rise.While these acted as tailwinds, the receding focus on rate hikes with commentaries from both the Federal Reserve as well as the RBI pointing towards the same helped mellow down the headwinds too.Obviously, RBI’s pause on Thursday did go a great deal towards ensuring that the week closed on a high despite the large gains made through the stop-start week raised the question of sustainability.
What is your take on markets for the coming week (a truncated one). Levels to watch out for Nifty? Can we stay tuned into the buy-on-dips market? Nifty reclaimed 200-DMA.
There is a very visible recalibration of rate hike expectations, with markets shifting eyes more towards the prospects of recession now than earlier.
The US non-farm payroll data, which had until now beaten expectations in the past 11 months, point towards a robust jobs market.
This increases the odds of markets responding to the NFP outcome strongly on Monday, given how strongly the dollar and gold have trended recently.
Last week, we had raised the upside objective for Nifty from 17,470 to 17,800, which appeared too near a target, when Nifty started steaming in, until it was timed out, buy the truncated week.
While Thursday’s close was encouraging for the Nifty, the participation from broader markets is still lagging. In fact, though Nifty cleared the 200 DMA, as well as the 50DMA, 44% of Nifty50 stocks is still below 200DMA.
Only about 35% of NSE 500 stocks have crossed their respective 60DMA, suggesting that stocks are waiting for earnings to kick in before following Nifty. This lag may take some bite off Nifty’s surge.
We will hence open the week with less enthusiasm compared to the last week and would hope that dips are held inside the 17,470-17,370 band, in order to retain the 17,800 trajectory.
Oscillators did peak in the intraday horizons on Thursday, which led to the pause, but the 3-day RSI continues to hold above the breakout level, and favours an achievement of at least 17,700, the two standard deviation mark, before any significant pullback. Until then, a “buy on dips” approach is favoured.
Q) We will also kick-start earnings for the March quarter this week. TCS will declare results on the 12th and Infosys on the 13th (Thursday). How should one trade the IT bellwethers and how are they looking on charts?
In the last 10 years, TCS has recorded a positive monthly return post Q4 earnings 50% of the time. Returns have varied from 1.8 to 21.3% during the positive months and (-1.2) to (-)8.9% during the negative months.
The odds of a positive month increase drastically, if the preceding 15 days registered a negative return. In fact during the last 10 years, TCS recorded negative returns 60% of the time during the 15-day period prior to Q4 earnings, and four out of 6 such times the post-one-month returns were positive, which varied from 1.2 to 21.3%, while the negative returns ranged from 1.2 to 2.9%.
From a worst-case perspective, there is a 66% chance of seeing at least a 1.2% gain, if history were to repeat itself, as TCS has recorded negative returns in the run-up to the earnings release.
Q) In terms of sectors, realty and capital goods rose. What led to the price action?
Capital goods gained this week led by largecaps and midcaps, which form around 82% of the BSE Capital goods index. Together, largecaps and midcaps gave an average return of 4% this week.
Individually, L&T, which forms 28% of the index, gained around 7% this week riding on the news of winning a large order for hydrocarbon business, contributing the most to the Index's gain.
Realty stocks gained an average 9% this week with large and midcaps, which form 84% of the index, leading the index.
RBI hitting the pause button in its MPC meeting also helped the stocks pick up pace, as this is a very rate-sensitive sector.
Q) How should investors play the small & midcap stocks in the first month of FY24?
April has been a positive month for smallcaps and midcaps. In the last 7 years, 86% of the time Smallcap250 index moved an average of 6% in April while 71% of the time Midcap250 index moved an average 5.6%.
If we look at the valuation picture, the NSE Smallcap250 index is now trading at 1Yr Forward PE of 13.7, which is the lowest level since the pandemic.
The Midcap250 and Nifty50 have eased from the FY21-22 level but are closer to FY20-21 levels. So comparatively, small caps are better placed for a bounce back.
Any stocks which traders can look at, which are showing signs of bottoming out?
Zensar Technologies: LTP Rs 280 | Buy | Entry range: 273-275 | Target: 295 - 320 | Stop Loss: 262
The bounce back that we saw since January 2023 met with some consolidation in February and March. Since March, the stock has been moving within a downward-sloping wedge and recently has broken above the pattern resistance indicating bullishness.
Also, the MACD has broken above the signal line hinting at more upsides in the near term. We expect the stock to move towards Rs 295 initially and thereafter towards Rs 320 in the next 3 to 6 months. All longs may be protected with stop loss placed below Rs 262.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
Nifty eyes 17,700! Why you should bet on small- & mid-caps in April, explains Anand James - The Economic Times
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