Chandan Taparia of Motilal Oswal says sentiment is changing, FIIs may extend market rally further

So, if you look at the long-short ratio of FIIs, this is doing well in the Indian market. If I look at the historical data for the last two and a half to three years, on the downside the ratio is closer to 10% to 15% and on the upside it goes to 70-75%. And few days ago, FII’s long-short ratio was 12% to 13% and now it is (12:13), so it clearly shows that FII’s are covering their short position. So, short covering was triggered. They also created some long positions after a long time. So, somehow it seems that the sentiment is changing and it may support the Indian market. Chandan Taparia, Motilal Oswal says that till now, SIPs and inflows from DIIs were supporting the market and now if FIIs are short covering, there may be a further lag in the bullishness.

ET Now: Almost, it’s like a series. Although we hit a lot of records this week, Nifty hit a record, Bank Nifty hit a record this week, but the range we started the Nifty in, we ended clearly or close to the same points only, a gain of only 50 odd points. Is there a sign of fatigue now? Are we ready for a consolidated trade for next week? How do you trade from here?

Chandan Taparia: So, we have noticed that Nifty has been moving in a broad range with support at 23,300 for the last seven trading sessions. It made a new lifetime high at 23,666, but closed near the 23,500 zone and is only up 0.15% on a weekly basis. So, we have seen a flatish close. But the good thing is that the index has managed to hold the support zone. Every little drop was being bought. Therefore, we believe that the main trend may remain intact till it stays above 23,300 zone and the market is likely to recapture the recent high of 23,667 and then further bullish towards 23,750 to 24,000. So, I believe that supply, which is close to its lifetime high, is being absorbed and is very positive and I believe that if it manages to convey key support in the coming week, the next bullish phase cannot be ruled out. But the good thing is that Bank Nifty provided a lot of support, Bank Nifty rallied around 3% and contributed a lot to the fall of other heavyweights names in Nifty (8:52). So, I believe the market may continue to be overall bought in the next bullish phase till it holds above 23,300 in Nifty.

ET Now: We see that the FII long to short ratio has improved significantly now. We are over 50% long FII. And this week itself, of course, behind the blocks, because the streets of the whole week saw blocks worth about 20,000 crores, but then we saw that FIIs also bought on the same day, it was more than 7,000 crores and now they have started. Turn on buyers. What does the data look like in terms of F&O as well?

Chandan Taparia: So, if you look at the long-short ratio of FIIs, this is working well in the Indian market. If I look at the historical data for the last two and a half to three years, on the downside the ratio is closer to 10% to 15% and on the upside it goes to 70-75%. And few days ago, FII’s long-short ratio was 12% to 13% and now it is (12:13), so it clearly shows that FII’s are covering their short position. So, short covering was triggered. They also created some long positions after a long time. So, somehow it seems that the sentiment is changing and it may support the Indian market. So far, inflows from SIPs and DIIs have been supporting the market and now if FIIs are short-covering, a further bullish lag may be seen. Next week is our monthly expiration and we have seen some short build up in major indices and stocks, but the market has recovered well from the lows. Hence, that short covering could take place in the next two-three days and this has also helped to improve the long-short ratio of FIIs. So, I believe that with the FII’s long-short ratio going higher, there is a possibility that short covering could be triggered and the market could reclaim the recent highs and extend the rally towards the 24,000 plus zone.

ET Now: I want to ask you about FMCG. Lots of triggers when it comes to this field. You have some recovery in rural demand which is being penciled in going forward. Individual company comments have also been positive when it comes to rural demand. You also have MSP in kharif crop which has been increased and significant FMCG players and not only FMCG players, you have banks, you have NBFCs, you have a lot of sectors which have some degree, some kind of agriculture exposure. What do you pencil in when it comes to rural demand recovery? Do you think it is a sequential story? Do you think it’s just around the corner? And what will be the impact on FMCG stocks?

Chandan Taparia: That’s a great question, but first, if I answer on the technical front, on the Nifty FMCG, we have seen a slight decline in profit bookings in the last two weeks. I remember that most of the FMCG stocks saw a good rally on 5th January. In fact, the Nifty FMCG index itself is ahead by 5-6%. But then, profit booking is clearly visible and most FMCG names are seeing some supply pressure, whether we talk about ITC (5:21) or Hindustan Unilever or names like Colgate, Dabur, or Godrej Properties. Do, most FMCG. The name has seen some profit booking in the last two days. But I believe the overall consumption theme may continue in the Indian market, so this decline is buyable. If I look at the price behavior, we have seen a corrective move of around 6% to 7% from the recent peak and that provides a better opportunity to go with. So, what I would do, I would go with a name like Tata Consumer in the FMCG space that this recent dip provides a bargain buy. Technically speaking, it has improved from 1160 to 1082 level, and near 1070 it provides best buy, so one can buy with support of 1025 and again see Tata Consumer Range bound bias and further towards 1160 level. can increase. But if you ask me to focus on a consumption theme, I think we should focus on Monsoon or FMCG or some auto name. So, I will focus more on escorts whose theme is Monsoon as some companies may be in focus. So, I believe counters like Escorts or if you go purely with FMCG, names like Tata Consumer or Godrej Consumer Products can provide some bargains after the recent decline of last two weeks.

ET Now: So, help us in that case, how do you trade in the financial and banking sector because the kind of move that we’ve seen throughout this week, especially led by the private banks, and of course they were under-owned, is there valuation comfort? , basically they are improving, asset quality is improving, all the triggers are now, is the whole story played out or can we see some more gains in the coming weeks for financials? Will you do business in private banks or PSU banks?

Chandan Taparia: (7:18)… It was buzzing during the week. While Nifty was flat, most of the…, like Nifty Financial and Nifty Bank performed well. Hence, the Nifty Financial Index is about 2.5% higher. And if you look at Nifty Bank, it also gave a gain of around 3%. So it clearly shows that both the indices are showing slight outperformance. I will focus more on private bank. So, if you look at the price behavior of Axis Bank, it looks very promising. It has already seen a strong bounce in the last three-four days, holding well around 1230. Hence, Axis Bank could become a name in private bank with support of 1210, which could accelerate this move towards 1280, 1300 levels. If I need to focus on a financial name, I believe one can look at a name like Chola Finance where some kind of buying can be seen, the main trend is intact, with support from the 1340 zone a higher support is clearly visible. So, Axis Bank, other private banks, some financial companies may be in focus and I believe some kind of relative strength and (8:20) sector rotation may help this sector perform. I can also focus on ICICI Bank from the point of view that it has already seen a decent consolidating move of the last seven weeks and a small follow-up above 1160, 1165 could initiate the next bullish phase in a private bank like ICICI Bank.

ET Now: You want to add some more choices here? Some deals that our viewers can bank on for the coming week?

Chandan Taparia: Yes, I can discuss escorts again. We are positive on Nifty Auto and I think it is Monsoon time and I am sure most of the viewers will enjoy their weekend with Monsoon in most parts of the country. So, if I look at the price behavior, this stock is doing really well. One of my favorite names from the last few quarters. It is making higher tops, higher bottoms on the weekly chart. After last five days consolidative move, it has again started positive move with good or fair trading and delivery volume. So, I believe the momentum can extend here and it could be one of the names that can outperform the broader market. Hence, we expect a rally towards 4500 to 4750 in Escorts with support from 4200 to 4245. Second business, we can focus on Bharti Airtel. We believe that select telecom companies can do well. Again, index rebalancing was also the reason. The main trend is positive and we note that whenever this stock recovers for more than three to five days, it immediately witnesses buying interest as technically it holds well above its 50-day exponential moving average. So the main trend is positive and the decline in small profit bookings in the last five days provides a new foothold for buying interest. We have seen a surge in trading volume which clearly indicates a bargain buy. So, Bharti Airtel may be another name with support of 1385 (12:05). We expect a fresh run towards 1475 to 1500 levels. So, Escorts and Bharti Airtel can be two preferred picks in auto and telecom majors.