Small & midcaps in a bear market; Nifty could head towards 10,300 by Dec 2019

Traders should not catch a falling knife as maximum losses can be made at such times.

The Mid and smallcap indices are in a bear market since they have been facing tough times for over a year now, Umesh Mehta, Head of Research, SAMCO Securities.

Edited excerpts:

Q) Nifty broke below crucial support levels in the week gone by and was on the verge of turning negative for the year 2019. Since the Budget day, investors have lost more than Rs 13 lakh crore on the BSE. What is the way ahead for markets? 

A) Indian markets have witnessed a vertical waterfall in the past few weeks and going ahead things don’t seem too rosy for D-Street.

The Mid and smallcap indices are in a bear market since they have been facing tough times for over a year now, Umesh Mehta, Head of Research, SAMCO Securities.

Edited excerpts:

Q) Nifty broke below crucial support levels in the week gone by and was on the verge of turning negative for the year 2019. Since the Budget day, investors have lost more than Rs 13 lakh crore on the BSE. What is the way ahead for markets? 

A) Indian markets have witnessed a vertical waterfall in the past few weeks and going ahead things don’t seem too rosy for D-Street.

However, it is not the right time to get into these stocks just yet since there can be some more pain left before a sustained rebound is witnessed in these stocks.

Q) What mistake should one avoid making especially at a time when markets are falling?

A) We would advise traders to not catch the falling knife as maximum losses can be made at such times. If you are new to the market then take a maximum risk of 1 percent of your capital and do not overleverage when times are tough.

Additionally, identifying bottoms is extremely tough and you should not pick up companies just because it has fallen a lot.

Let green offshoots show signs before getting into quality companies. Never make the mistake of averaging a loss and last but not the least always keep stop losses.

Q) How are the next 6 months likely to pan out for D-Street? One of the brokerage firms, Phillip Capital slashed target price for Nifty for Mar 20 to 11,300 from 12,200. Are you also reworking on your Nifty targets? What levels do you think the market will achieve by December 2019?

A) There is more room for pain for the Indian bourses and we feel Nifty can reach levels of 10,300 -10,000 by December 2019. Though there will be short bounces and short-covering, the general medium-term trend will be downwards.

Q) More than 300 stocks are trading below 200-DMA. These include names like MRF, 3M India, Maruti, Dr. Reddy’s, Britannia Industries, Bajaj Auto, NIIT Tech, RIL, Lupin among others. Are they worth buying at lower multiples for a long term holding horizon or should investors prefer stocks which are trading above 200-DMA?

A) The margin of safety is one phenomenon which investors should consider before getting into a stock. Buying companies at lower valuation multiples is certainly the right move. However, there are companies that are trading at higher multiples for many years now and are growing with a linear price chart.

Hence, just getting into companies which are trading below their 200-DMA isn’t the right approach and investors must look at other qualitative factors before buying. At present, investors can wait before they start bottom fishing.

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