Monday, November 29, 2021
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Beware, sharper than expected correction could start next week: Sanjiv Bhasin

We are overweight on midcaps selectively, but underweight on Nifty and the metal and IT baskets. A sharper than expected correction is coming in the second half of September starting next week, says Sanjiv Bhasin, Director, .

What are your thoughts on the broader markets?
Everyone was in despair in mid August when midcaps had their worst month arguably and I stuck my neck out. But the midcaps have had a stellar pullback. I still think midcaps are good to go but I am very wary of the market. It is now calling for a prolonged correction which may come next week but the second half of September can be very volatile.

If you have positions on the trading side, try and hedge yourself but protect your profits. Metals and IT are overbought and overpriced. Any small correction can lead to large pitfalls. So, yes overweight on midcap selectively, but underweight on Nifty and the baskets of metals and IT. I think a sharper than expected correction is coming in the second half of September starting next week.

That is a very differentiated view when everybody is coming back with confidence you are actually raising a red flag. It is important to highlight for short term positional traders. From what you are saying, it seems the setup of the market is turning cautious. It appears that the market is hiding behind Nestle as the top gainer?
Well, there will be index management for sometime but that would not pay off. There is froth and people are bereft of ideas, I agree there has been a lot of positives but there is a price comfort which is not there. My my advice is if you have trading positions, hedge yourself because if you fall 300 points, people will say the heaven has fallen on earth and corrections can be sharp and swift in a bull market. I am not saying the bull market is over. All I am saying is prepare yourself for 500-700 points fall. You have to be very careful of your trading positions.

There are times when we are long and short on both of the sides. In the end, we have to make money for our clients and customers. We have to see that they are well serviced. One could always be wrong but I am very very cautious on the market particularly in metals and IT. The second rang IT stocks are way overbought. They have got all the comfort of work from home but valuations are nowhere in their favour.

You expect correction in metals. Assuming that correction plays out the way you are saying, which are the areas where you will recommend people to buy or reposition themselves in that corrective phase?
We are looking for a basket of stocks. My top pick there would be Bosch. We know the underpinnings of supply demand and disruption in semiconductors. Bosch has invested more than 1.5 billion in their Dresden plant. They will be the most complete OEM for autos in the next few months. The stock is giving you a once in a lifetime opportunity. I am saying it will be Rs 23,000-24,000 by next Diwali! So, that is one top quality pick.

The other pick would be another midcap called IRB Infra. It is related to reopening of road construction. Fastag has been made compulsory. For movement between cities and states. So traffic is going to be a very big mainstay. It trades at a market cap of less than Rs 6000 crore which is a very relative price. All its businesses are doing well.

I am also extremely bullish on entertainment with Zee being a relative outperformer even though it is a dark horse. I like some of the banks like RBL and Bandhan where the worst may be priced in.

What about the power sector? The power sector have started perking up again and power consumption is also coming back. Do you have that on your radar or do you look at some names in power?
Tata Power was a scream at Rs 40 and I still hold that. The same is the case with JSW Energy. NTPC is a perfect play both on dividend yield and demand. Please take it with a caveat, we had entered at lower levels, your price comfort should be more important than anything else. So Tata Power, JSW Energy and NTPC in that order could be very good plays in the near to slightly longer term.

What about IT, metals? These had run up quite a lot and are susceptible to corrections. HCL Tech used to be one of your top picks. If the market correction comes in, what are your thoughts there?
HCL Tech has moved from Rs 900 to Rs 1200. One could not have asked for more and it still is one of our top picks along with Tech Mahindra. Both have given 40-50% returns. But there is a valuation comfort and there is a price comfort which is why the consensus overweight on metals, IT may play out on the wrong side, so be watchful.

We think some of the banks, particularly midcaps, can be huge outperformers given that there will be write-backs rather than write- downs because provisioning for Covid was more excessive. Hence the names we have taken. It is not that numbers will still be steady but the price comfort is not there in certain sectors and there is consensus overweight so that is where you have to be really cautious.

If we take a six month view, say around the February or March quarter, will we witness incremental levels and strength in the market after this correction is digested? What are your thoughts on slightly medium to long-ish term?
There will be nobody on the street who will tell you that they had expected Sensex at 58,500 before Diwali. I think we are fully priced to see 60,000 but we will wait for earnings, there has to be macro catch up. India has been in a stellar place because of the second wave not being good. Our government is doing extremely well on the vaccination, liquidity chasing India and China’s fiasco. But there is a price comfort of all points.

The 17500-18000-17800 are all stretched and these could be the pivotal points. So yes, given another 1,000 points on the Sensex or 300-400 points on the Nifty should be the top for the time being and we will take it from there. But like I said, we have to be sure that numbers are catching up, reopening playing out and that all will come through quarterly earnings. Earnings have to be the key conduit for further rerating of the index on any multiple.

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