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    Possible for Nifty to cross 7000 levels as rally more broad-based: Tushar Mahajan, Nomura India

    Synopsis

    The rally, which started with large cap names, has now spread to the midcap names as well and 7000 really is not too much of a distant dream.

    ET Now
    In an interview with ET Now, Tushar Mahajan, Head-Derivatives (Listed F&O), Nomura India, shares his outlook for the market. Excerpts:

    ET Now: After a monster rally on Wednesday, what is in store for the Nifty in the short term? Do you think 7000 on the Nifty is now inevitable?

    Tushar Mahajan: I would not be surprised if we see those levels. Seeing the kind of rally over the last two months, we continue to believe that there is a strong momentum in the underlying markets. The rally, which started with large cap names, has now spread to the midcap names as well and given the kind of momentum, given the kind of inflows that we are seeing in the equity markets, 7000 really is not too much of a distant dream. It might take a little bit of being rejected from 6930-6950 odd levels two-three times before we get to those levels, but I do not think that is far away.

    ET Now: Do you see any kind of profit taking in long lasting one before we make it to that higher top of 7000?

    Tushar Mahajan: No, given the pace of move that we are seeing in the markets, given the overall market internals, you are seeing increased participation across the board. An increase in turnover, an increase in market breadth with each progressive day. Whatever little profit booking that happens will be healthier ones which need to happen for this kind of move, but each of those dips will be used to buy. So you will have technical falls into the market.

    Maybe when the market was being rejected at 6750 odd levels, we were thinking that 6630 to 6650 is a good zone for profit booking. The moment that got touched, the markets have gone back strongly. After yesterday’s move and the way 6750 got taken out with the kind of pace that it did, now the short-term support is probably going to that level and those are the kind of small tickets of profit booking that you are seeing. Nothing really sustained, so to say.

    ET Now: Increasingly banks are becoming very high beta in nature. The day the market is flat, banks are biggest underperformers and the day the market makes high node like for instance yesterday, banking pack clearly outperforms. What is the level that you are monitoring when it comes to the Bank Nifty now?

    Tushar Mahajan: The thing with the Bank Nifty is that despite being a massive constituent of the Nifty, it has been a laggard for quite a while and right now what you are seeing is really catching up in the Bank Nifty performance with the Nifty/Sensex and still there is room to go in that space.

    So that relative outperformance between the Bank Nifty and Sensex and the Nifty should continue for a while, and the reason being driven by this rally bottoming out of growth, hopefully coming in of a decisive government, macro parameters all getting in place, a lot of that is going to be, the first leg of defence is going to be the banking sector and that is why you see this rally.

    With respect to levels, maybe 14,000-14,500 could be an interesting level to watch out for, but at this point in time more than looking at specific levels on Bank Nifty, I would rather continue to trade the outperformance there.


    ET Now: So at Nomura in your trading book, are you preparing your portfolios for the Nifty till 7000 or you are preparing your portfolio for a Nifty which really could go beyond 7000?

    Tushar Mahajan: Trading books do not really look that far off, but what I can tell you is that we are definitely trading with the long bias. 10,000 still is some time away.

     


    ET Now: 7000? Are preparing your trading book with the assumption that the Nifty could easily stretch beyond 7000 in the last hurrah in the run-up to the election?

    Tushar Mahajan: Sorry, thought you were talking about 10,000. So I was a bit taken abide by that number. We definitely think that we could move to the 7000 levels. So the way we are looking at is that the market could take a little bit of pause at 7000, but when it breaks, it will break with the conviction. So for the moment our first level for the index is really the 6950-7000 odd range.

    ET Now: What is going to lead the market up to that 7000 mark because there is a lot of debate about what one should do with defensives, IT and pharma, whether that will perform, whether you should completely chase cyclicals or keep invested in both IT and pharma as well as the cyclical pack?

    Tushar Mahajan: The leader of the pack will definitely be the financial services, banks and then you will have the other sectors which will follow on, maybe cyclicals like L&T, industrial stocks basically, those are going to follow up. In the run-up to the election, you will probably not see the IT pack do too well.

    While as a house, as a sector we are bullish on IT, but as a tactical play IT may probably be the underperformer right now. So you could probably look at going a little bit underweight on IT versus banks, which obviously is a clear consensus trade across the street that is going to be the big leader of the pack.

    ET Now: Any short positions in the book which you run?

    Tushar Mahajan: I am saying IT is going to be the underperformer until elections. Sectoral fundamentals and everything continue to favour it, but sentimentally given the nature of this market, given that there really is a beta play, that is probably a sector which will not perform as much.

    ET Now: In general, do you think till 16th of May, the markets are safe because the hope and assumption that we will get a stable government, Modi will become PM will keep market in safe hands?

    Tushar Mahajan: Two things – while there is a large section which attributes this move to the fact that there is going to be a change in government and we should have more decisive leadership coming through. We have to give it to the fact that overall the fundamentals have also improved. We are no longer looking at current account deficit. We are no longer looking at the threat of being downgraded and all those things do contribute to the overall sentiment in the markets. Growth definitely looks to be bottoming out.

    We had IMF which increased the growth forecast yesterday as well. So like you say, the Modi factor is probably an add-on thing. So more than just looking at the 16th May election results, one has to look at it as an overall story. Coming to the point that before election results will the markets keep rallying and if the government does not come in as decisive, will we kind of see a massive sell off after that?

    The point is that as we keep getting into the polling dates, today is the third phase of polling, we will also start seeing a lot of electoral trends with respect to the polling percentages and all of that which do have an influence on what kind of winds are blowing, is it massive anti-incumbency vote or is it really just a more social media kind of vote. So a lot of those trends will also start impacting the markets in the run-up to the 16th.

    ET Now: We were chatting with Anup Bagchi from ICICI Securities as well earlier on in the show and he too seems to be pretty bullish on capital goods. What is your view at Nomura?

    Tushar Mahajan: In the capital goods space, you will probably see the front liners move first rather than a lot of the midcap names. So L&T definitely leads the pack, but we call them all the growth basket and our assumption is that post the change of government, in the next leg of the rally, you will continue to first see the rate cyclicals come in and after that growth cyclicals will follow, which is the likes of capital goods space. So as a house our view right now is that you continue to play with the banks and once there is more clarity, you will start seeing the catch up trade coming up on the capital goods space.

    ET Now: Banks across the board or is there a favourite amongst PSUs, private sector banks or even NBFCs for that matter?

    Tushar Mahajan: The valuations story right now is making the PSUs catch up to the private sector performance. Overall, fundamentally while private sector is a more favoured bet, tactically you will see the catch-up trade on the PSUs continue to play.

    ET Now: Some would argue that for those who are planning to buy PSU banks now, they are no longer buying deep value, they are simply buying into momentum because PSU banks were oversold, they were cheap, they are no longer cheap.

    Tushar Mahajan: They are no longer as cheap as they were maybe a month back, but on a relative scale versus private sector banks, you continue to see the differential is reasonably high. It has not yet covered the average of the last five-six years.

    ET Now: Interesting you say that because we just had the executive director of Bank of Baroda right before you joined and Mr Dhawan made a point that it is too early to assume that NPAs have bottomed out and growth is back. In fact, he clearly made a point that for the moment it looks like the markets are betting on euphoria. So bankers know their business more than the markets know, and the markets are saying that bankers are being conservative.

    Tushar Mahajan: He is far more knowledgeable than me to debate that, but the markets definitely are pricing in better NPA cycle going forward. They are pricing in credit growth over maybe the next half of the year and probably the rates beginning to top out. So right now at least the market seems to be favouring the public sector banks to that extent.

    ET Now: You guys at Nomura have been bullish on the prospects of telecom for a very-very long time now. What is stance as of date?

    Tushar Mahajan: We continue to maintain that stance. Within the telecom space, we continue to like both Bharti and Idea. But the fact is if you are looking at purely from a trading standpoint, you are looking at the kind of momentum that you are seeing right now, you are not going to make money trading these names. From the fundamental long only basket that you want to have, you obviously would not get Bharti and Idea there.

    ET Now: In terms of directional bets or I would say trading bets, what are your top three positions?

    Tushar Mahajan: Top three positions per se would be difficult to discuss on public channel, but what we are talking about is that our portfolio is fairly beta heavy and we continue to like the banking space as the leader of the pack. Within the banking space, we continue to like the PSUs.

    ET Now: Any worthwhile trade or any trades which are worth considering purely in the options market?

    Tushar Mahajan: What we are seeing in the options market right now is that a lot of investors are beginning to protect their portfolios based on the positioning to more beta events, to more fat tail events which is everyone has got the memories of 2004 and 2009 elections and that is a big driver of trades in the options market and that is what we see that people are taking positions on the longer-sided options, which is more than 6000, 5900 puts on the downside and 7500-7600 calls on the upside.

    In terms of absolute premium, you do not spend too much buying these kind of puts or calls which are far out of money and it does protect you against sharp moves in the market provided the elections results do not come out to be as favourable or they come out to be way too favourable versus what the markets are pricing currently.
    The Economic Times

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