Invest in largecaps, liquid midcaps, says technical analyst Milan Vaishnav; check 4 bluechip bets

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Updated: Dec 17, 2018 4:36 PM

Even though major downside may not be seen in the stock markets in 2019, range bound correction can’t be ruled out, said technical analyst Milan Vaishnav.

Gemstone Equity Research & Advisory Services’ Consultant Technical Analyst Milan Vaishnav

Even though major downside may not be seen in the stock markets in 2019, range bound correction can’t be ruled out, said Milan Vaishnav. However, the investors are advised to remain invested in the largecaps and good quality liquid midcaps, Gemstone Equity Research & Advisory Services’ Consultant Technical Analyst Milan Vaishnav, CMT, MSTA told FE Online in an interview. Larsen & Toubro (L&T), Ashok Leyland, HDFC, Reliance, TCS, SBI are a few stocks that may offer safe returns to the investors in the coming year, the technical analyst added.

Talking about rupee, Milan Vaishnav told Ashish Pandey of FE Online that the domestic currency is not likely to fall beyond 72.50 versus the US dollar and may trade between 69 to 72 range going forward.

Here are the edited excerpts from the interview:

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Where do you see Sensex, Nifty going forward given headwinds such as political scenario, global crude oil prices, among others?

If we speak of the global environment, Markets have faced many headwinds like threat of trade wars, currency fluctuations, rapid rise in crude prices, political uncertainty, etc. The Year-to-Date returns on NIFTY have been barely over 2% after it saw a corrective decline of over 12% from thee highs of 11760.

Going on from here, we expect the Index to trade in a broad range of 8% on either side. Though the Markets may display underlying strength and makes attempts to retest the high of 11760 in next 12-month period, this level may not be easily taken out given the mentioned headwinds.

How do you expect the rupee to behave in the near-term? Is there any range which you have in your mind?

We expect the Rupee to remain stable. Rupee should see the broad range from 69 to 72 against the dollar. In worst case scenario it may not weaken beyond 72.50 against the USD.

The US is witnessing some slow down and the short term yield-curve is getting inverted. Though this may not bring recession overnight but Fed is seen certainly likely to stop raising rates. This will also keep the strength of US Dollar in check. All this may prevent US Dollar from strengthening rapidly and this may help INR stabilizing against the USD.

What kind of strategy should investors apply in F&O segment?

Investors will have to remain ready to tackle volatility in the Markets. This element of volatility will remain ingrained for the major part of the year going ahead, more so given the general elections that are slated to happen in 2019. Given this scenario, the investors will need to take care of couple of things. First of all, investors need to have heightened awareness with regard to importance of trade and liquidity management while they trade the F&O. Apart from picking right stocks as coming times will remain highly stock specific, they will need to manage their trades well. This comings with planning adequate liquidity, avoiding excess and unplanned leverage, following trailing stops to protect profits, maintaining liquidity in planned manner to avoid margin pressures infused due to volatility, etc.

Importantly, diversifying even the short term trading holdings would be necessary. Rather than chasing any particular sector, investors should remain exposed to top 2 or 3 favorably rotating sectors and this may be hedged by taking synthetic hedge exposures in indexes.

What do you suggest retail investors should buy and sell? Could you name a few stocks that may gain in the near term?

Looking at the technical structure of the Markets, I would strongly advise to remain invested in Large-caps and good quality liquid midcaps. If we define the benchmarks, limiting the investment in the large caps and with the NIFTY MID 50 constituents would keep the exposures relatively safe.

In terms of stock specific view, I think, Larsen & Toubro, Ashok Leyland, HDFC, Reliance, TCS, SBI, etc may return safe returns over the next 12 month period. There will be many stock specific out-performances that will be seen from Infrastructure, Auto, Realty and  Financials.

How has 2018 been in your view given it being a volatile year? What’s your 2019 outlook?

2018 has been a volatile years much on the expected lines. The returns on NIFTY have ranged from 12% at one point of time to presently just over 2% on YTD basis. The year remained volatile and the coming year of 2019 too would remain a volatile on given technical reasons.

If we examine the long term Monthly Charts of NIFTY, the second phase of rise that took the Markets from 11000 to 11760 came with a big negative divergence on the lead indicators. We may not see any major downsides in the Indian Markets but a secondary or intermediate trend arising out of range bound corrective moves cannot be ruled out.

One most important thing that investors should keep in mind is that though Indian Markets may relatively out-perform the global equities, the appreciation will not be a linear one, and will come with all the volatility associated with it. More so, when we have general elections coming up in 2019. Investors will benefit only if they adopt a highly stock specific approach. Selecting right stocks will be the key and Investors can do this by carefully rotating the sectors in their favor using tools like Relative Rotation Graphs (RRGs).

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