A roller-coaster year ahead

The Nifty has recovered magically from a low of 2,539.45 points in March 2009 to a high of 6,338.50 points in November 2010. It has been a commendable feat, but stiff resistance from the earlier all-time high of 6,300-plus, posted in January 2008, has proved to be a roadblock, and the Nifty has lost around 10% from its recent peak.

It has been an arduous climb from the March 2009 low. Expecting the Nifty to continue rising without any correction would have been too much to ask. In the near term, it can decline further if it breaches the 5,750 level as the next support comes in at the 5,562 and 5,349 levels.

Considering the quantum of rise, it seems that 2011 might not be an exciting year for the markets, especially since the Nifty has gained around 150% over the past 18 months. If the index has to continue the uptrend, it will have to close way above the 2008 high. In such a scenario, a further 8-10% upside above the 6,300 level is possible.

Despite the erosion in the dollar valuation, the markets haven't gone up this time around, which is surprising. For quite some time, there had been a correlation between the rupee and the Indian equity markets. A corresponding rise in the global crude oil, which negated the gain of the rupee against the dollar, seems to have been the reason behind the deviant trend. Banking stocks have been at the forefront of the uptrend in the Nifty.

Despite a recent decline in these stocks, the sector is not in a mood to take a backseat. Any revival in the market is likely to be led by the banking stocks, making the sector a good investment opportunity. State Bank of India, Bank of Baroda, Canara Bank, Axis Bank and Punjab National Bank are the top picks in the sector.

The capital goods sector has been a laggard off late, but stocks such as Areva T&D look attractive and BEML could turn out to be a dark horse. The fast-moving consumer goods sector's scintillating growth has left little on the board for investors, but Hindustan Unilever and ITC are still attractive long-term investment bets.

The healthcare index, too, has been a darling of the bourses. The high valuation of the sector means there are not many stocks to choose from at the current levels, but Apollo Hospitals, Glenmark Pharma and Ranbaxy Laboratories are some options.

The information technology sector has had a stupendous growth, leaving little room for a rise for the mainline stocks. Only mid-caps, such as Hexaware or Tulip Telecom, offer interesting investment opportunities, but looking at the recent mid-cap meltdown, one should be very cautious about these stocks.

The scam-hit realty sector can be avoided and the sugar industry is another sector to stay away from. Pivotal companies, such as Reliance Industries, Tata Steel, IDFC and Sterlite Industries, should be in your shopping list for 2011.

The buy-and-hold strategy might not work in 2011. In a market facing the risks of rising crude oil prices, an unusually strong dollar index and political uncertainty, trading might be the right option. The year could turn out to be a roller-coaster ride, making it an astute stock-picker's market.

HEMEN KAPADIA
CEO, Chart Pundit

WHAT 2011 HAS IN STORE FOR YOU

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