We expect Nifty50 to hit 16,800 in September series; here are top 10 large & midcap stocks: Dharmesh Shah

A volatile week for Indian markets and bears largely remained in control. What led to the price action?
Last week was more of a consolidation at the index level after a sharp 13 per cent rally in the preceding five weeks led prices to the overbought trajectory, although midcap and small caps relatively outperformed and seen catching up with benchmark.

A key takeaway is that — current rally is strongest in magnitude in the past eight months which led to a falling channel breakout signaling end of the corrective phase.

Therefore, short-term consolidations would make a larger uptrend healthier and should not be construed as negative, rather use dips as an incremental buying opportunity in quality names

What is your take on the August series expiry and where do you see markets headed in the September series? How are FIIs placed?
We expect the Nifty50 to maintain an uptrend and gradually head towards 18,300 in September. Intermediate dips towards 16,800 should be used as an incremental buying opportunity.

Foreign investors who have remained net sellers over the past eight months have turned buyers since July around 45,000 crore, indicating an improvement in sentiment.

Nifty registered Gold Crossover of EMA on daily charts in August. Do you think this lays down the foundation of fresh record highs in the September series?
Golden crossover (50-day EMA crossing over 200-day EMA) implies a major shift in momentum in favour of the bulls.

However, this is not a short-term indicator but a structural improvement. In the last decade, in eight out of 10 such instances, the Nifty has generated an average of 11% return in the subsequent three to four months post cross over.

We, therefore, expect Nifty to maintain the rhythm and head towards new highs by end of CY22

Sectorally, which sectors are likely to remain in action (strong and weak) in the September series?
Our preferred sectors based on relative strength are BFSI, auto, consumption capital goods, and PSU while the IT space would witness stock-specific outperformance and offers favourable risk-reward proposition from a longer-term perspective.

PSU as a theme is expected to relatively outperform in the coming months

IT sector fell more than 3% in the week gone by. What led to the price action and do you think the weakness will continue in the September series?
Our long-term indicators suggest that price-wise correction in the IT space is done and the sector is undergoing timewise correction.

From a longer-term perspective, sector offers favourable risk-to-reward setup to build a portfolio of quality large and midcap names. For the month of September however, we expect select midcap names to relatively outperform large cap peers

Small & midcap stocks bucked the trend – how should investors play the broader market theme in the September series?
The broader market indices are expected to catch up with benchmarks as Nifty Midcap and Nifty Smallcap indices have given a breakout from an eight-month falling channel along with a strong thrust on breadth as measured by the percentage of stocks above 200 DMA increasing sequentially from the June reading of 14% to 50% currently, suggesting broad-based participation that augurs well for the longevity of uptrend.

Strength in domestic equities is well supported by a positive correlation with US indices, which have signalled the end of the corrective phase with a breakout above the eight-month falling channel.

We expect key US indices like S&P500 and broader Russell 2000 to extend their uptrend and domestic equities to benefit from their positive correlation.

Top stocks to watch out for?

Preferred largecaps: SBI,

, , TCS, , , , L&T, DLF, , and .

Preferred midcaps: Canara Bank,

, , , , , Concor, , Action Construction, , and Indian Hotel.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)