See No Threat Of A Bubble, Remain Bullish On Indian Market: Goldilocks' Gautam Shah

Gautam Shah: Well, I think for the last four months, we've gone through a lot, in terms of local and global developments and despite all that, you know, you have the Nifty coming back every single time.

I think the test of character is really in difficult times and the manner in which the indices have handled the difficult times in the last six months, I think is quite commendable and I think as we keep saying, liquidity plays a very important role in protecting the markets.

So I think the setup is still quite strong. The leadership is returning, momentum is packed, participation is excellent and there seems to be musical chairs within the index heavyweights. There was a time when the IT sector did so well and kept the market higher. It has taken a bit of a backseat.

Now you see the banks coming back so strongly in the last 15 days. That has really propelled the Nifty to levels of 22,700-800. But if you really look at the Nifty itself for the last four months, it's been in a sort of a band. So, 21,800 on the downside and the 22,880 area on the upside.

There have been a few attempts to break out and break down but they have really not worked. But in this period, stocks and sectors have done exceedingly well.

So I do believe that if the Nifty is able to get past this 22,800-23,000 area, which is an important resistance based on multiple studies, you could see the next big move on the Nifty. But till that does not happen, it's just best to stay with the specific sectors and stocks and ride this market without really overanalysing and without looking at the day-to-day action.

Gautam Shah: As you rightly said, HDFC Bank has a huge bearing on the Bank Niftyand that was one reason why the Bank Niftydid not do as well. In fact, even Kotak Bank, given the news flow of the last one week, but with the comeback of ICICI Bank, I think that's pretty much made up for the underperformance of the other two banks. That's probably why the Bank Nifty is now at the doors of 50,000.

So I think, that trend is pretty solid. Kotak Bank has been an underperformer for a couple of years. HDFC Bank does not have much to lose. You know I think at some point of time, appreciation will come but there is not much to lose. So I think that says the Bank Nifty is protected.

But within the Bank Nifty itself, I think our top picks have been ICICI Bank in the private banking space and SBI in the PSU banking space which has been an absolute favourite for almost six months now. We do see both these stocks delivering supernormal returns even from current levels.

On the Bank Nifty itself, I think once the level of 50,000 is cleared—which is a psychological and technical barrier—you could potentially see a move towards 52,500.

But the way the banks are placed, I just get the confidence that the Nifty is still in fine form and if Reliance were to start contributing, you know, that would be the icing on the cake.

Gautam Shah: The low volatility has been a characteristic since Covid hit us. I think, since the time Nifty started rallying from 7,500 levels in March 2020, you've had an environment where volatility has been low, corrections have been shallow, and I think that's the new normal on account of liquidity.

But if you really look at elections and the expectations and if you compare it to the past, I don't think it's comparable. When have you seen in the last 25 years that we run into elections, with Rs 90,000 crore of domestic liquidity coming in every single month?

In some sense, I think everyone has a view that the election is a non-event. So I don't think the market is very concerned about what's likely to happen in the first week of June.

Having said that, there definitely could be some volatility. As I keep telling my clients, it's life before June 4 and life after June 4. So you don't really plan too much, you know, in advance. I think the market should remain in good shape. We have our own positives apart from elections, you know, which is playing out beautifully.

Volatility, I think, is not a factor because still the India volatility index is between levels of 11 and 16. All is fine. It's only when it starts moving above 16 that there is a problem. So I don't see that happening anytime soon.

Gautam Shah: Sometimes, price action takes over everything. So I could talk about fundamentals, I could talk about earnings, I could talk about India's demographics, India's valuations, and the sweet spot that India is in comparison to world equity markets because we are still one of the best performing markets in the world.

If you divide India by the rest of the world on the ratio charts, you will see that we have been in an uptrend for the last three years. So I think all the positives are there. I think some quarters in the market have raised (concerns) that we are overvalued or we could be in bubble territory.

I don't think that's true, because if you look at the historical valuations, we are slightly above mean and we are nowhere close to bubble territory. With the earnings pickup of the last couple of weeks, you know, and we saw the GST collections in the last couple of days, all of these just speak volumes about the confidence the Indian market trend has.

So I think put all of it together, it does seem as if this bull market will continue. There could be short sharp corrections from time to time. We have seen this, but you have to stick to quality.

I think that's the key message to your viewers in this market—anything that's substandard, gets hit very quickly. You know, stay with quality and I think your portfolio will be safe.

Gautam Shah: Well, metals have been our favourite sector for almost four-and-a-half months now. In fact, we caught it very early, because we got the indication on the ratio chart that things are changing. Thereafter, it has just been one step higher, every single week because stocks have participated well, fundamentals have picked up.

Now you hear about all the tailwinds, the China factor is kicking in and you have smart money which is aggressively (investing) into some of these metals stocks, which are not overly valued.

I know they're considered cyclical in nature. But right now, we see them as structural. Looking at the ratio charts, I do see that the metals index has the potential for another 10–15% upside from here.

So all the top stocks you know, right from JSW steel to JSPL to Nalco, SAIL which we've covered multiple times in the past, but Tata Steel looking good for Rs 200, Vedanta, which we covered in the past and looking good for a lot more.

So I think, this entire space has caught the attention of market participants and with fundamental tailwinds coming in as well, I think it's a sector where one should stay committed.

So while auto, banks, pharma, chemicals also look good to us, you need to have a very serious allocation to metals.

Gautam Shah: Pharma has been a favourite sector for a year-and-a-half now.

I mean, look at the trends that you've seen in the pharma space. Look at Sun Pharma. Every single week has been a higher high for a very long time. Look at the momentum in Cipla, you know, Zydus Life and now with Divi’s Lab and Laurus Lab coming back.

I think the pharma sector is also in a sweet spot at this point of time. In fact, as we speak, we are almost at lifetime highs, I think and we are coming out of almost two months of consolidation and if the breakout does happen, you could see another 8–10% upside for the pharma index.

So it's a sector where you stay committed. It's low beta in some sense, because on difficult days for the market, it doesn't fall much, but on good days of the market, it does well. I think all the top names including Dr. Reddy’s, we like and we feel that one should stay invested in them.

Gautam Shah: Honestly, there are no indicators because if you overanalyze in the mid-cap and small-cap space, you will miss the party.

I think that's been the case for a lot of people in the last three months because every time you thought that okay, now the big correction is coming, you had a shallow dip and then you know, all the quality small caps and mid caps came back strongly. So even now, I think, the setup is pretty strong. They are at lifetime highs.

They continue to outperform and in the last four months, the Nifty hasn't gone anywhere. We started the year at 22,000. So we are 3–3.5% higher. But if the mid caps and small caps continue to maintain a series of higher tops and higher bottoms.

So I think this mid-cap, small-cap outperformance is here to stay and I think it is likely to stay for the rest of this year. But stay in that top quality mid caps, because that's where the money is flowing in every single month.

So the handful of 50-60 quality mid caps and small caps is where the real focus is and and I think they will continue to outperform over the next six months.

Gautam Shah: In the whole of last year, we were quite bullish on the IT space. In fact, we played the entire rally in mid-cap IT. Thereafter, a couple of months back, things just changed gradually. We managed to identify the same and we pretty much went overweight into the IT stocks.

I still like them from a longer term perspective. If somebody's looking at 12–36 months, you know I still like TCS, HCLTech, Tech Mahindra. I think, they can do well but you know mid-cap IT has been very richly valued.

I think smart money has moved away from this pocket to some of the other pockets. Obviously, there are some global challenges that we are facing as well as this whole debate whether AI is going to disrupt the IT industry worldwide and India, I think that's a very valid debate as we speak today.

But right now, I think it is out of favour. In this market you don't touch underperformers. So simply stay away and focus on the other pockets.

Gautam Shah: Well, let's see the phenomenal move. I mean, you look at the charts and you realise what a great move the entire auto space has seen in the last one-and-a-half years.

I think it is still going strong. It's just that there are some sort of musical chairs here as well. Tata Motors has taken a bit of a breather, whereas Maruti, Eicher Motors, Escorts and Ashok Leyland have now started to do well and I think they will continue to see further upside.

So you have to be stock specific. You can’t buy anything and everything in auto and the other space that we like.

I think we didn't speak in detail about chemicals. I think chemicals is making a very strong comeback and this breakout is here to stay. So we see immense alpha being created in chemicals over the next 3–6 months.

Gautam Shah: At Goldilocks, we like to stay with that absolute top quality. I think that's what we do—fundamentally strong and technically strong. Having said that, I think SRF, Deepak Nitrate, Gujarat Fluorochemicals and Aarti Industries are our top picks and we see them doing very well.