Banking, auto among top 5 sectors to lead next leg of rally, explains Ajit Mishra

Banking, financial and auto are yet to contribute to the rally, and we believe positive news such as improving economic recovery, better financial performance and the government's PLI scheme will be driving growth for the stocks in the sector, which in turn will drive the benchmark, Ajit Mishra, VP - Research, Religare Broking Ltd – said in an interview with Zeebiz’s Kshitij Anand. Edited excerpts:    

Q) Market has created history last week as Sensex and Nifty50 touched fresh record highs in a quick span of time. What led to the price action?  

A) The market has shown strong traction recently despite tepid global cues. We feel the ramp-up in the pace of vaccination and receding COVID-19 cases has led to renewed buying from foreign institutional investors (FIIs). Moreover, the easing of CPI has also aided sentiments.   

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Q) The banking index hit a fresh high on Friday and is up over 20% so far in 2021. Do you think the recommendation of 'Bad Bank' will lead to smart money moving towards the banking and financial services space?  

A) Banking & Finance have started to show momentum over the last few trading sessions. The expectations of strong economic recovery coupled with recent updates on NPAs resolution plan have aided sentiments. Going ahead, factors such as easing of NPA concerns and stable inflation numbers too would further aid momentum to these stocks, which in turn, would continue to attract investors’ interest. 

Q) As we head towards the FOMC meeting in the coming week – do you see volatility to increase? What should be the strategy for investors – stay put or buy on dips?  

A) We expect markets to consolidate in a range and volatility may remain high as investors would look for cues on the timing of taper tantrums.  

Also, the future course of rates would be an important thing to watch out for. We believe the US Federal Reserve may continue the same tone as stated in the last meeting minutes and thus recommend participants to continue with the “buy on dips” approach while being selective. 

Q) In terms of sectors – which sectors will drive the next leg of the rally?  

A) Banking, financial, and auto are yet to contribute to the rally. We believe positive news such as improving economic recovery, better financial performance and the government's PLI scheme will be driving growth for the stocks in the sector which in turn will drive the benchmark. Apart, IT and FMCG will continue to see selective buying from the investors. 

Q) What is your view on small & midcaps space which have outperformed the index so far in 2021?  

A) Smallcap and midcap have seen a decent run-up so far, and we would not be surprised if there will be some correction. However, we maintain a positive view toward the broader markets and strongly suggest being very selective while picking/investing at current levels. Investors should avoid stocks having high debt, poor performance and corporate governance issues. They should also refrain from picking stocks just based on absolute price, without understanding their actual worth. 

Q) Please share 3-5 trading ideas for the next 3-4 weeks.  

A) Considering the market scenario, we recommend maintaining positions on both sides. Traders may consider taking positions in the below stocks. 

ITC: Buy| LTP: Rs 231.10: Accumulate within 226-229 range with a closing stop loss of 222, and a target of Rs 242. 

Axis Bank: Buy| LTP: Rs 807.80: Accumulate within 790-800 range with a closing stop loss of 780, and a target of 840.   

SAIL: Sell| LTP: Rs 115.25: Short within 117-119 range with stop loss placed at Rs 125, and a target of Rs 102.   

Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.