BSE Sensex and NSE Nifty 50 have a 5 per cent potential upside on cards, but then may correct by as much as 15% in the next few months, investment advisor Sandip Sabharwal said. On Friday, S&P BSE Sensex was ruling nearly one per cent up at 59,322, while NSE Nifty was trading firm at 17,685.85. In an interview with Surbhi Jain of FinancialExpress.com, Sandip Sabharwal said that technical indicators show relatively overbought conditions in NSE Nifty 50 and Bank Nifty. For a long-term investment horizon, Sabharwal suggested adding ICICI Bank stock. He also suggested investors to focus on larger banks in a monetary tightening cycle as these banks have got high CASA deposits. Here are edited excerpts from the interview.
In the near term markets look expensive relative to earnings growth prospects, PE ratio, Market Capitalization to GDP, as well as due to the fact that we have seen earnings downgrades after the last quarter results; and the monetary tightening cycle is still on, which should usually impact growth negatively. At this stage risk reward on an overall market basis is not favorable. Markets have a 5% upside and 10-15% downside potential over the next few months.
What do charts, technical indicators say about Nifty and Bank Nifty?
Technical indicators are also indicating relatively overbought conditions. In fact last week markets became as overbought as those were oversold in March 2020. As such short term investors need to be careful. Longer term markets should still do well.
What are your underweight and overweight sectors?
At this stage we are overweight on Auto Stocks, Auto Ancillaries, Reopening trades like hotels, restaurants, capital good stocks etc. We are underweight on technology and commodity stocks where we see downsides. Financials are ‘buys on dips’ as near term runup has been too sharp.
What are the key drivers and triggers in the stock market going ahead?
Positive triggers would be falling inflationary trends which are not visible at this stage. The US Dollar should be watched carefully as an unbridled rally in the US Dollar can lead to significant liquidity issues in the global markets. India is relatively well placed overall and as inflationary pressures subside we should do well.
What is your year-end outlook for Sensex, Nifty and Bank Nifty?
Year-end, we should be happy if markets are at the same levels as current levels as there are significant headwinds which could impact economic growth as well as valuations.
What do you think about new age companies like Zomato, Paytm, Nykaa?
These companies’ management have recently started making comments which are liked by analysts and fund managers, ie, we will turn profitable. However the path is not going to be smooth as they are used to burning cash and not focusing on profits. Out of the above three Zomato and Nykaa still have decent business models which can be leveraged in the future.
In banking space, which stocks do you think can be added to the portfolio for long-term gains?
ICICI Bank is best placed. Overall investors should focus on larger banks in a monetary tightening cycle as these banks have got high CASA deposits.