Nifty faces resistance below 26,000; Gautam Shah says PSU banks and metals offer better risk-reward

Indian equity markets are stuck in a consolidation phase, with the Nifty repeatedly failing to cross the 26,200 level decisively, even as global markets continue to trade near record highs. However, according to Gautam Shah, founder of Goldilocks Global Research, the broader market structure does not yet signal a breakdown.

Talking to ET Now, Shah said the market has developed a “cold feet” near the 26,200 mark after several failed breakout attempts in the last three months. Despite the lack of momentum, he sees the current phase as a consolidation rather than a bearish trend.

“The level of 25,450 is crucial for the Nifty. As long as the index stays above this support, there is a strong possibility of a rebound, especially with the Union Budget a few days away,” Shah said. However, a critical break below this level would be relevant from a medium-term perspective, he added.

Shah noted that while sentiment remains weak—especially in small- and micro-cap stocks—technical indicators suggest that the risk-reward is slowly adjusting to preferred long positions. He advised investors to stay focused instead of over-diversifying by focusing on sectors that show relative strength and fair valuations.

PSU banks still have room to run

Across sectors, Shah is bullish on public sector banks, which have significantly outperformed private lenders over the past year. He highlighted that the PSU banking index has crossed the 9,000 target indicated in earlier reports and may still see further upside.

“There are no signs of topping out yet. There could be another 2,000-point upside led by the top four or five names in the PSU banking index,” Shah said, adding that valuations remain comfortable and continue to support the under-ownership theme.

Metals are emerging as a multi-year trade

Shah also reiterated his bullish stance on metals, calling it the strongest emerging theme in Indian and global markets. He pointed out that while the fundamentals looked weak six months ago, the price action signals a shift that is now being supported by improving fundamentals.

“Hard assets have been extremely bullish in the last six months. Our working target for the metals index is 12,000, but 15,000 is achievable in the long term,” he said. According to Shah, the rally is likely to be broad-based, with ferrous metals and steel producers expected to participate along with base metals such as copper, aluminum and zinc.

He added that global cues are also supportive, noting that the US metals and mining ETF has been the best performer in recent months.

Caution on FMCG and IT

In contrast, Shah remains cautious on FMCG and IT stocks. He said FMCG companies continue to trade at rich valuations, while there is a lack of clarity on continued consumption levies despite the recent GST cuts.

“I would prefer to wait for a full quarter of results before taking a confident call on FMCG. The index has been among the worst performers, and valuations remain expensive,” he said.

Shah also maintained a negative outlook on Indian IT stocks, citing valuation concerns, AI-led disruption and better technology opportunities in global markets.

Overall, Shah believes Indian markets may underperform global peers right now, but the phase is temporary. A budget-based trigger combined with strong global markets could help the Nifty regain momentum – if key support levels remain intact.