Chances of recovery in PSU bank stocks are extremely high, but pharma stocks are still not entirely out of the woods, Kunal Bothra told ETNow. Edited excerpts:
ET Now: How would you describe the week gone by?
Kunal Bothra: The market made a remarkable recovery on Thursday and Friday. It may be because of the change in the tone for the markets. At the start of the week, markets were going through an extreme amount of pessimism, sector wise. Stocks corrected about 15-20 per cent. But market recovered on Thursday and Friday. What stood out on Friday was not the index moving 100 points, but the improvement in market breadth. There were a lot of beaten-down stocks which managed to rally 8-10% on an individual day. This was one of the key takeaways on Friday. The Bank Nifty managing to make a strong comeback was the added sign.
On weekly charts, the Nifty has formed a bullish hammer pattern. The carry forward sentiment for start of next week would be on the positive side. You may look at maybe 100-150 points further rise on the index before the Nifty starts inching up towards the first key resistance mark of 10,800.
ET Now: Which are some sectors where you have seen maximum reversal?
Kunal Bothra: Fridays session was more important because it categorised a lot of sectors which were trying to make a good comeback. OMCs were one of the few sectors which not just on the volume and price front but on the open interest position seemed to be making a strong comeback. OMCs are one sector which should see a follow-through price action.
The other sector I believe is the Nifty IT. It reversed most of the gains both in the largecap and midcap space. This sector might see a short-term correction, not a big correction. But for the next one week, these stocks may witness profit booking.
On the other side, reversal was seen in many metal stocks. Tata Steel, Vedanta and Hindalco are among a lot of stocks that hit their 200-day moving averages.
The erstwhile defensive sectors like IT could see some bit of correction.
ET Now: How are you reading into the banking space, especially the PSBs, given the kind of amendments that we saw? PSBs have also rallied a fair bit on the back of IBC amendments, but going forward how are they looking on the charts?
Kunal Bothra: SBI is prominent as it holds a lot of weightage in the PSU banking index. It's a Nifty50 stock as well.
But after SBIs price performance in the past few days, the price is not seeing a correction. Generally, whenever these stocks rallied 5-7% in the last few months, they corrected and managed to make new lows. But that was not the case.
The behaviour for many of these PSU banking stocks, especially post SBI earnings, has changed. You have now seen volume accumulation, short covering data on the futures side for many of the private sector midcap banks stocks as well as tier-2 largecap names. So, this is a sign of stability.
I think post the big correction these stocks could now go into a bottom formation process. It may take a couple of weeks, but I believe the chances of reversing the trend for PSU banks on a positional basis are extremely high. Anyone who is looking to buy the stocks in this space can look at SBI, Bank of Baroda, Bank of India and even PNB as these stocks might rally 15-20% in the next 3-5 weeks.
ET Now: What do you make of pharma stocks as some of them have done well in terms of numbers, but the reaction has not been that great?
Kunal Bothra: The prices are not reflecting the buoyancy because it has been not been consistent. If you look at Sun Pharma, the stock has recovered in the last one week, especially in the fag end of the last week. Dr Reddys post results has been unable to find its momentum back. Volumes were very high on the results day and the candle stick pattern was positive, but there is no follow-through price action.
If you look at other stocks like Biocon, it has been trading with a stronger and a fair degree of upside. The stock remains to be on a strong uptrend trading below its 200-day and 50-day moving averages as well. It is in a comfortable territory and the stock may continue to head higher.
Cadila also had a very good candle stick breakout on Friday post its results, but whether the results would translate into a meaningful uptrend still needs to be watched.
I would look out for something like an Ajanta Pharma as a short covering trade because it has been beaten down significantly in the last two weeks, almost 25-30 per cent in the last two weeks, and the indicators are extremely oversold.
A trading bet here and there could be possible in individual pharma names, but the sector overall is still not out of the woods.
ET Now: What are some trading ideas that you have picked out for our viewers?
Kunal Bothra: I am trying to trade a bit contrarian on the OMCs as many of these stocks have seen not just good volumes data on the cash side but even on the F&O side; there was a good amount of short covering.
BPCL is the stock which I am recommending for a buy with a target price of Rs 400 and stop loss at Rs 370. My second stock recommendation is a buy call on Just Dial. It not just crossed a swing high on Friday, but also managed to cross almost a two to three-month high, both in terms of volumes and price. So, it is a buy with a short-term target price of Rs 550 and stop loss of Rs 475.
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