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G Devanathan from Rare Enterprise told CNBC-TV18 that new highs are being led by frontline stocks and price behaviour of large cap stocks are positive. He added that markets can go higher post earnings and before Budget.

Excerpts from the exclusive interview with G Devanathan:

Q: What are the technicals suggesting? Is the momentum still pointing upward?

A: It does and today was a fairly important day in terms of test to the market. We had closed last week in very good strength with price and volume behaving very nicely in almost all the sectors, except for IT and capital. So today was a fairly important day in terms of a test to see whether in the light of negative news from the global markets, how well do we hold on? Since the last time we made a new high post Diwali, we could not hold on to it for more than a couple of days but this time, the market has passed out in flying colours.

We are comfortable with the new highs in the indices being led by frontline stocks and this time around Reliance has made a new high for the first time after Diwali which it did not last time and also we are seeing FMCG as a new sector which has coming in and showing leadership. So the price behaviour of the largecap stocks are hitting new highs and this is backed by both price and volume which is a fairly good sign for an uptrend and that indicates that the momentum in the market is fairly good and we are likely to see a higher prices going forward.

Q: Any sense of what kind of levels technically could be expected in the next couple of months?

A: We don’t try to outguess the market in terms of how high it can go because it is usually does a bit more than what we expect both on the upside and on the downside. So we have got a lot of positive news flow in the markets with listing of major IPOs and stuff like that and then there is going to be post-result, pre-budget season. So unless there is a major negative development elsewhere, we seem to be in an uptrend but we might get overbought at the speed which we are going. So one has to be a bit careful in taking profits as well at the same time there is possibly room for a correction before the budget in that sense but as of now it more or less looks good and its better to follow the trend.

Q: What are the technicals suggesting on the largecaps like ITC, Hindustan Unilever?

A: The FMCG index had hit a new high and this is happening after a very long time. During the entire rally over the last 2-2.5 years, we have seen that FMCG stocks have really not gone anywhere and that lacked complete investor and trader interest, absolute lack of momentum and stuff like that.

I want to also correlate this with something that we have been noticing post-Diwali, which is that the capital goods sector, which has kind of been the torch bearer over the last 3-4 years of this bull market is suddenly kind of slowing down and as of now we saw that most of the market is at new highs, and your capital goods sector is still kind of dragging behind. In fact, they were the ones that were actually selling-off when the index just made its new high a few days back from which we could not sustain.

So, I think there are clearly an indication that some long-term money is booking profits in the capital goods sector, which probably looks expensive and a shift into the defensives. I think FMCG is clearly a defensive sector from an economic or market point of view and now in relation to where the index and the rest of the stocks have moved up, it probably looks a bit cheap.

So, we are seeing good momentum in the frontline stocks led by ITC, Hindustan Unilever. And this index when it hits a new high I would expect it to hit a new high. So, I would not expect any dramatic momentum to catch-up in this sector because this is a sector that is fairly liquid and it should go more in a stepladder process. So, I think the current momentum is good and overall it is good news for the market because a market that has a leadership of frontline index stocks generally helps sustain the gains.

Q: What about sugar, what is that telling you technically? We have had a fantastic rally in sugar stocks today?

A: Yes, sugar today has come back with a bang. I thought today a couple of largecap sugar stocks had huge volumes and dramatic percentage gains. But roughly, they might have gained close to 40-50% somewhere thereabouts about the entire fall that they have made. So, I think so far the gains have been good. But I think going forward, this is a sector that is a bit sensitive to news and we have to see how the results of this quarter come through. I think further these two things panning out properly would determine serious gains from these levels. It is a sector that is bounded remarkably well but I think one should be quite alert in monitoring the developments in this sector.

Q: What did you make of the moves in the two heavyweights, ICICI Bank and RPL?

A: Oil is now close to USD 100 for the first time and what I think is that as long as it keeps staying above USD 95, there is a very real possibility that it can go above USD 100 and if that happens, a quick 15-20% gain in oil is not ruled out. This could actually cause a lot of noise and turbulence all over the world. But we have seen a positive correlation to our markets with crude for the last four years, particularly so because if oil goes up, we find that Reliance, ONGC, RPL and these stocks kind of go up. So, I think RPL’s move over the last two days has been very good. Reliance Industries has made a new high for itself post Diwali, which also augurs well for the market and oil related plays. So, I think the focus for the rest of the month should be to be alert of oil going up and if that happens, I would expect Reliance and RPL to post further gains.

ICICI Bank continues its very strong weekly uptrend. It had broken out of its range, I think about 3 months and it had gone into some kind of consolidation. Today’s move clearly suggests that the longer-term uptrend in ICICI Bank has been renewed and further gains are definitely on the cards.

Source: Moneycontrol.com