What's In Store For I.T. Companies In Q1? | NDTV Profit
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00:00Manav Chopra, Director, Technical Analyst of Newama Institutional Equity is joining
00:03in to talk to us about how he views the markets from where we stand right now.
00:07Manav, hi, thanks a ton for joining in.
00:09You've put out a bunch of reports and we'll talk about those because stocks in the IT
00:13pack seems to have taken a cue from that report and have run up quite sharply actually.
00:17Yes, I mean I wanted to give credit because it was 10 or 15 days ago if I'm not wrong,
00:21Manav might have the exact date, but when you put out that buy call on IT, nobody quite
00:25thought the IT stocks will rally and they've had a fabulous run.
00:28You've had a bunch of very happy clients, Manav and a promotion due.
00:37Just before we go into IT, a quick word on how comfortable are you with where the Nifty
00:42stands right now.
00:44New record highs of five days, markets have seemed very stable, the Wix is controlled,
00:49it's been gradually up moved.
00:51The breadth may not be very supportive, but we've seen sector rotation, large cap assuming
00:56leadership.
00:57I mean it's all working for us.
00:58Do you feel like further upside in the near term is a given?
01:02Yes, very much.
01:04So I just want to phrase it in a simple two parts.
01:09If you look into the markets pre-election, we did witness a lot of laggards coming from
01:14the frontline space, let it be the private banks or the IT reliance.
01:19The heavy lifters were actually being the underperformers of the market.
01:23But what has happened post-election, the breadth, the significant breadth of the market has
01:27improved drastically.
01:28We have seen the market movers actually take the leadership starting from the private banks
01:35and now what we are witnessing in IT, reliance is near its all-time highs, Larson is also
01:40basing out along with some frontline names.
01:42So the participation post-election results on the heavyweight Nifty 50 names have been
01:49very, very strong, which wasn't the case prior to the election.
01:53It was more or less like a polarized kind of a rally and the market breadth was actually
01:57deteriorating from the frontline space.
01:59But currently, when we look into the picture, it's far more broad-based, which gives us
02:03a very strong confidence that the current rally is likely to resume from the current
02:09levels too.
02:10Our base case for the Nifty on the upside should be close to 25,000 to 25,500.
02:15And I think the larger participation for the upside in the markets would be seen from the
02:20IT space.
02:21That's when we published our report on the IT.
02:24But going forward, I think we will be seeing a sector rotation.
02:28I think that has largely been the case for any bull market in general.
02:32But within the large-cap space, the leadership, which was missing in the IT since past few
02:37months, we would be seeing that coming back and off late that we have seen the witness.
02:43For a very short-term perspective, my sense is that 23,000, 23,500 will remain very strong
02:50supports for the markets.
02:52And going forward, I don't expect any meaningful correction coming in.
02:55So one very important data that I don't see any exhaustion or a short-term topping out
03:00for the market.
03:01Also, when we look at the global market charts, everything seems to be going into a scenario
03:07where the momentum and the rally continues towards 25,000 and 25,500 levels.
03:12Got it.
03:13Okay.
03:14Manav, but great call on the Nifty three, four months back, great call on IT a few days
03:17back.
03:19I understand.
03:20Are you still constructive?
03:21Because we're not talking when you release the report, but a few days after.
03:24So there's a bit of a rally that has happened.
03:26Are you still constructive?
03:27Very much.
03:28If you look at our long-term perspective on IT, our base call is that we'll be expecting
03:35new highs coming into the IT index.
03:38That is our first base case, which is roughly at 39,000 for the IT index.
03:44And the next higher upside target is close to 42,000.
03:47So we are looking quite constructive for the IT index for next six months and more
03:52than that.
03:54If you look into the long-term perspective of IT, it has been in a larger uptrend.
03:59The last few months, after the IT index topped out in the month of Feb, we witnessed three
04:05months of intermediate correction.
04:07This correction phase was nothing but a short-term pullback in a larger uptrend.
04:14And the kind of a reversal that we have seen in the month post the election in the month
04:18of June, that revalidated and reconfirmed the last long-term thesis for the IT sector
04:25in general.
04:28The IT index took three months to decline from 39,000 to 32,000 levels, but it took
04:35one single month in the month of June.
04:37It exceeded previous two months' highs.
04:40So largely, these are some qualification criteria when a sector is in a larger uptrend.
04:46The declining path is more slow, more grinding, but when the recovery happens, it happens
04:51actually much ahead of the time and very, very quick in span.
04:55Obviously, there were a lot of short squeeze that played out, but the larger theme still
04:59looks very much intact.
05:01Within this space, we have also witnessed early leadership coming into the names like
05:05Tech Mahindra.
05:06Tech Mahindra was the first large-cap stock which has also exceeded its giant highs.
05:11And going forward, my base case for a stock like Tech Mahindra, we are expecting targets
05:15of close to 1800-1900 levels.
05:18So my top pecking order within the large cap is going to be Infosys and Tech Mahindra.
05:23Infosys also has formed a very strong structural bottom and on a long-term model chart, the
05:29stock indicates a near-term target of close to 1800, which is close to its peb highs.
05:35And thereafter, we head towards its all-time highs.
05:37So the structural intact for the IT is very much positive.
05:41And I think going forward, next six months will definitely belong to the IT space.
05:46Within the mid-caps in IT, we like persistent system and Naukri.
05:52Persistent and Naukri.
05:53So, Manav, fair assumption that if people are just listening to you right now and have
05:58not read that report, Naukri at the current market price, persistent at the current market
06:03price, Infi and Tech Mahindra should be bought for the next six months?
06:07Absolutely.
06:08I think that is our medium-term perspective.
06:12We are looking at for a horizon of at least six months and even from the current levels
06:18within the large cap space, we see an upside of 15-20%.
06:21But for the mid-cap persistent system, when we are looking at the larger picture charts,
06:25I think the breakout that it has recently played out, you know, it seems quite visible,
06:32you know, the persistent system is headed towards 5,500 to 6,000 levels.
06:35So there's a reasonable upside that can be witnessed.
06:38And particularly in the last four sessions, the kind of move that most of these names
06:44have witnessed, it definitely indicates that there is some strong buying that has witnessed
06:50into it.
06:51And largely, the other part, one of the data sets that we were looking into, you know,
06:55majority of the mutual funds are kind of underweight IT.
07:01And imagine if an index, which is coming close to the all-time highs and coming near
07:05the result season, if any positive tailwind that comes through and, you know, that would
07:10actually propel the markets to much higher when we see some upgrades coming in.
07:14But largely speaking, yes, there is a reasonable amount of scope for the IT.
07:18Even the mid-cap IT, we see an upside of 20-30% from the current zone.
07:23Manav, we would have loved to have a longer chat with you, but we are completely out of
07:27time.
07:28But I cannot not ask you what two other notes that you put out.
07:30One was on tyre and fertiliser.
07:32Your top sector picks here between tyre and fertiliser and the timeline that an investor,
07:37a medium-term investor should be looking at to holding these stocks.
07:40Great.
07:41So, I will start with the tyre as a space.
07:44You know, the auto index in past one and a half, two years, you know, I have seen one
07:48of the best rallies of last five years.
07:52And this, within this space, you know, we have seen sub-sectors within the autos, you
07:56know, being in a league of its own, you know, auto, and we haven't seen even a 50-day test
08:03in auto index post-October 2023.
08:08So it has been last one and a half years of a very strong rally with mild correction.
08:12In fact, tyre as a sector, you know, has witnessed an intermediate zone of corrections where
08:17the stocks declined over 15% and comes near a 100-day average, there is an accumulation
08:24pattern and then resumes its uptrend with a larger upswing, which not only exceeded
08:30previous highs, but, you know, usually we see a rally of 40% coming from the 100-day
08:34average.
08:35So this has been the test and the formations of tyre stocks.
08:39And lately, we've seen how Seat and Apollo tyres, which are our top bets, you know, formed
08:45a strong base around 100-day average and have started to witness an early signal of breakout.
08:51So from here, my upside for Seat is close to the levels of 3700, which is still 30%
08:59from the current levels and Apollo tyres, my upside target is close to 720.
09:04So, you know, in general, when the markets are at 24, plus 24,000 levels, it's very difficult
09:10to look for the ideations coming for a very high risk reward.
09:15And you know, tyre definitely suits that space very well.
09:19The other part is on the fertiliser space, which we had already initiated at early stage.
09:25But largely, you know, that is a theme that I'm looking for next 6 to 12 months again,
09:30where we've given an upside of at least 50 to 100% long on the fertiliser space, largely.
09:36Pre-election, post-election, very strong accumulation results, you know, accumulation patterns and
09:43the fact that, you know, early breakout on the monthly charts, basing out, largely is
09:48indicating that there is limited downside.
09:50And now, you know, we have witnessed a small brief correction and the fertiliser as a space
09:55has started to base out for the next leg up.
09:58So, you know, these are two sectors from the mid caps, which are providing a very high
10:03risk reward entry and within the fertiliser space, my top picks is RCF, NFL and Chambal
10:10Fertiliser.
10:11Got it.
10:12Manav, so good talking to you and great calling really on IT, on the Nifty and we'll watch
10:16out for the tyre stocks as well.
10:18But thanks so much for talking to us today.
10:19Thank you.