Manav Chopra, Director- Technical Analyst, Nuvama Institutional Equities, says in general, Nuvama likes metals, defence, power and mid-tier PSU banks. That is how they have selected the stocks within this space. Further, he says usually, markets do not remain oversold for a longer period of time in an ongoing bull market. That is what has been witnessed recently in the midcaps and smallcaps. After the kind of reversals that was witnessed in the broader spaces, a lot of frontline names have not only seen a good rebound rally, but a few sectors within the midcaps and the smallcaps have also extended their gains and reached all-time highs. The first question is about the broader markets. In March, suddenly there was fear on account of the commentary that we had got from the regulators – SEBI and AMFI – and an entire narrative was being built up about the froth in the broader markets. It has completely got undone now because from March lows, the smallcap index is already up 10-12% and even the midcap index is up. What do you think is the way forward for them?
Manav Chopra: One thing to note is that the decline that we witnessed from February and March was more or less corrective in nature and this is the beauty of the bull market where the corrections are very sharp and the markets always need an excuse to decline. This is definitely in hindsight. When we are looking at the broader perspective, the markets have actually not violated any of the medium-term or long-term supports to call it a trend reversal.

In fact, the markets have taken support at some important trend line levels and also some important zones where it has actually rebounded from the oversold levels. Usually, markets do not remain oversold for a longer period of time in an ongoing bull market. That is a classical case we have witnessed recently in the midcaps and the smallcaps. In fact, the point to note is that the kind of reversals that we witnessed from these broader spaces, a lot of stocks, the frontline names have not only seen a good rebound rally, but a few sectors within the midcaps and the smallcaps have also extended their gains and have reached all-time highs.

What we understand is that the price correction is definitely over and we are witnessing a bull market going forward. There could be certain pockets which would eventually see some bit of a base building, but largely the bull market is definitely there and for the midcaps and the smallcaps, we are witnessing a good amount of pockets which are witnessing some fresh legs of breakouts with volumes and there has been some sustainable moves over the period of time.

So, we remain quite bullish on the markets for the near term. In fact, the Nifty 500 today has also formed a new all-time high. So, looking at the current evidence, it seems the bull market is here to stay and eventually on the upside, we expect the midcap 100 to rally towards sub-58,000 levels and for the smallcaps, we have a target of close to 18,000 levels.

The bull market is currently on and is as strong as it was earlier, if not stronger. I want to shift focus to the largecaps as well because in FY24, the smallcap index generated 60-70% return. While the Nifty itself generated 27% to 30% returns, what about the next 12 months? Is it realistic to expect a double digit growth return across these indices or should the return expectations be a lot more tempered this year?
Manav Chopra: Yes, we have seen a strong comparison between largecaps and the midcaps. But there are certain pockets in the largecaps which are witnessing a good amount of structural uplift. out of which the biggest heavyweight is Bank Nifty. Looking at the Bank Nifty structure, the index has formed very strong support around the levels of 46,000, 46,500 and we have seen some big laggards within the banks like HDFC Bank or Kotak where they have witnessed a good amount of subtle accumulation.

My sense is the Bank Nifty is the index which will take the first leg for the markets higher and we have witnessed recently how banks have been providing that support for the markets and it did not let it break the important support of 21,700. My immediate expectation is that Bank Nifty is definitely headed towards its previous all-time high. In fact, the financial index has already breached its March highs and so the Bank Nifty is coming very close to the levels of 48,400 which is its important peak and eventually I expect those levels to break on the upside and eventually Bank Nifty heading towards 49,500.

Having said that, the leadership from the frontline space would be coming from the banks and looking into IT, which is the next heavyweight, it has been forming early signals of basing out formation around the sub-levels of 34,000. There might be near-term underperformance, but basing out of IT, around this level of 34,000, would definitely be quite a positive for the markets in general because we do not see much of a downside coming in and eventually any break above 35,500 would bring in some short-term breakouts and eventually for the near term, we expect Nifty to see a move towards 24,000. That could be possible in the next three to four months.Let me get into stock specific discussion because I was just going through your notes and some of the interesting names that catch my attention include names like Karur Vysya Bank because that stock has already been doing quite well. Even BSE has become 3x in the last 18 months. You are expecting further growth there. What makes you positive about these names?
Manav Chopra: It is important to note that with the kind of market decline that we witnessed in February-March, none of these names witnessed any sort of distributive patterns. Majority of the stocks have witnessed very subdued decline with very less volumes. Importantly, these were the first names where we saw very strong volume setups and the majority of the sectors have been quite positive.

BSE was the first name which started to form a series of minor higher lows when the smallcap index was declining. These are some very early indications that we got within the setups which had a very strong setup that we were looking at. On the basis of that, we expect at least for the near term, BSE to have a reasonable upside going forward. When we are looking at the chart patterns of Data Patterns, we did witness a strong breakout in January and eventually the stock retraced and eventually, it has been forming a strong base with subtle accumulation formation.

A majority of these names have a leg up of at least 30% from the current levels. But one sector which is really looking very good and could have more structured leg ups would be metals. When we are looking at the metals sector from a medium-term perspective, we do not see much upside in the dollar index. The aluminium charts are bottoming out.

Also, the copper is showing some early signals of breakout. In this case, one of the strong alphas that we expect could be made from the metal index in general. The metal index has also witnessed a strong breakout in the last few sessions and the leadership has been maintained from the frontline and the midcaps are also breaking out.

We really like SAIL as a selection from the midcap space. And my base case for SAIL, where we are expecting a good amount of upside because the structural breakout on the monthly charts are also doing very well.

Apart from SAIL, is there any other top bet that you would want to recommend as well as a high conviction buy because you talked about how rest of the stocks are likely to see a 30% upside?
Manav Chopra: Besides metals, the other pack that we really like is going to be the mid-tier PSU banks. Within the mid-tier PSU banks, we have seen largely how the PSU banks have been in a very strong bull market in the last few years and mainly in the last six months, the PSU banks have taken leadership ahead of the private banks.

The next space where we would be seeing a very strong, a good amount of volumes in terms of accumulation that we have seen and the breakout that we witnessed, is very much due coming into the mid-tier PSU banks. Karur Vysya is definitely in our short list. Also from the power space, JSW Energy is also very well positioned.

We have been tracking this quite closely and recommending this aggressively to our clients. But if you look at the broader perspective of how the power space is looking at it, in general, the BSE Power index has also seen a very strong outperformance in this kind of market volatility. In general, the sectors that we really like are going to be metals, defence, power and mid-tier PSU banks. That is how we have selected the stocks within this space.