Kunal Bothra’s 3 buy calls for next week
Short covering is the first sign of bottoms getting formed for stocks.
Given the gains that we have now seen this week and for the last couple of weeks, where do we stand now?
Last week, we were discussing whether it is a series of achhe din (good days) but I believe last week’s performance suggests that it is time some more achha hafta (good weeks) for the indices. We are heading towards a very strong breakout or a resistance on the Nifty and that 11,700 mark. It is a very strong resistance.
Look at the set up in the last three-four weeks – a) we have not just changed the market mood in terms of sentiments going into a strong bullish mode from an extremely pessimistic scenario, but look at the way many of the sectors and stocks have behaved in this last three-four weeks. It indicates that whether it is largecaps or frontliner stocks like Reliance and TCS to a larger extent and other bellwethers like HUL, they have been doing phenomenally well.
The laggards are now trying to pick up pace. Short covering is one of the key reasons why you are seeing that happening but short covering is generally the first sign of bottoms getting formed for these stocks. When you look at the data for the internals of the markets, that indicates that this is a very healthy trend in the making and just a confirmation that the 11,700 breakout could lead to another boost of maybe a 300-400 points and a dash towards the all-time highs for Nifty. I believe the next couple of weeks could be very interesting for the markets.
Do you feel that pharma is an exciting opportunity in the market currently? Would you venture further into the broader markets right now for a better risk reward ratio?
You have to try and venture into stocks which have been lagging significantly behind in terms of price performers. So, whether it is Tata Motors or Mahindra & Mahindra, they have shown a lot of price and volume positivity in the last one to two weeks. Ashok Leyland also is trying to make a good comeback. Motherson Sumi was showing signs of short covering last week and especially on Thursday.
On the back of all of that price performance, it will now try to shift gears from trying to play Maruti, Bajaj and Hero MotoCorp to try and move on to the laggards in terms of price performance because that is where the next leg up could be.
The same case could be built up into a lot of the overall market breadth as well. The midcaps would now try and pick a pace yet again. In the last three days of the previous week, we saw very high volumes coming back into a lot of midcap names.
That itself is an indication that the market participation is getting back into a risk-on mode and generally when one sees risk-on mode coming back into the indices or into the overall marketyou see the midcaps trying to outperform. As a short term play, I would look out for more midcap opportunities next week.
What are some of your picks for the week ahead?
I want to suggest three buy calls. The first one is a buy on NIIT Tech. That stock is heading towards a very strong breakout. The results for the stock are due in the near term, but I believe on the price front, a rounding bottom pattern is getting breached for NIIT Tech. I would suggest a buy with a target of Rs 1,500 and stop loss to be kept at Rs 1,400.
Balkrishna Industries did extremely well on Friday. I believe that even at current levels, the stock looks fresh for another Rs 70-80 upside. So, I would recommend a buy on Balkrishna Industries with the revised targets of Rs 930 and a stop loss closer to Rs 796.
The third would be a buy on Ashok Leyland. Many of these auto stocks have been laggards which could probably pick up pace. Ashok Leyland could be one of them. The stock had seen a very good round of short covering on the price front as well; breakout of a cup and handle pattern on the day charts. Buy with the target of Rs 84, 10% higher from current levels and a stop loss of Rs 73.