Gautam Shah Says Two Sectors Will Lead Market Recovery

Given that the markets are fast-paced and discounting rapidly, investors should avoid 'sell the rally' strategy, according to Gautam Shah.

There was no point panicking a few weeks back when the Nifty was at around 15,500 levels and the market breadth was bad, the founder and chief strategist at Goldilocks Premium Research, told BQ Prime's Niraj Shah.

The correction of the last nine months was to “take away the excesses of 2020 and 2021” when stocks rose by 5-20 times in just 15 months, he said.

Shah cited certain factors that indicated the market was "overdone" and due for a recovery. “The bear market was almost nine months, and the average drawdown on the NSE 500 was 43%. Only 13% of NSE 500 stocks were trading above the 200-day moving average.”

He expects markets to have formed a bottom with the recent lows, though he awaits the charts to gain evidence on the hypothesis.

This market recovery looks different from earlier recoveries when they went on to make new lows, he said. “It is unlikely that we will do that this time.”

The “texture of this rally” is different from previous attempts in the last three to four months, especially given the performance of mid- and small-cap stocks and the market’s resistance to pessimistic news, which are signs of a potential bullish trend, he said.

Shah advises investors to have a "bottoms-up" approach to the market, instead of a "top-down" one.

In terms of the rupee depreciation, Shah said the inverse correlation between the rupee and Nifty over the last three months has been beneficial. Looking at the dollar index, he expects the rupee to start appreciating, he said.

Key Themes

Mid Caps And Small Caps

Mid and small caps are one of the best buying opportunities since March 2020, he said. "You will make money if you have a 12-24 month time frame."

He cites the market breadth data in the past few months that has shown phenomenal results. "It was extremely oversold. The potential to rise is substantial. In the next 6-10 months, it may even strike a lifetime high."

FMCG And Auto

According to Shah, the FMCG and auto sectors are the new leaders of the recovering market, which is “unusual”.

Real Estate

The momentum in the real-estate market will persist, as seen over the last 18 months, Shah said. "Real-estate will at least make new 52-week highs and the best is yet to come in the sector."

Top sectoral stocks are performing well and this is a "mega medium-term opportunity”, he said.

“If the Nifty falls, real estate will follow suit. But overall from the medium and long-term perspectives, the risk is 5-7% and upside is 20% on an index level. The stocks will do much better."

Metals

According to Shah, the metal sector has "lost its charm". It had a phenomenal two-year run but some of the top stocks falling by 40-50% in the past eight months can lead to a minuscule bounce-back, he said.

He emphasised that the present market is not about metals, IT or banks; it's about other sectors as the leadership has changed.

Crude Oil

Shah expects crude oil to stay between the $85 and $120 a barrel, which is great for India.

On the other end, public sector units take a lot of time to gain momentum and there is immense opportunity in the broader market, he said. Therefore, sticking to the top five PSU names is not wise.

"If you are an investor with a 12-36 month horizon, go ahead and buy PSUs. You will make money."

But if one is looking at momentum, then these stocks and perhaps even Reliance Industries Ltd. will underperform for some time, he said.

Auto Auxiliary

"Auto auxiliary as a basket is absolutely hot, and there is a lot more to go," Shah said.

Mahindra & Mahindra Ltd., Maruti Suzuki India Ltd., Bajaj Auto Ltd., Tata Motors Ltd. are some of the top names he sees as promising.

"Please stick to the industry leaders and challengers. That's the best way to claim your money," he said.

Watch the full conversation here: