Here's why Rahul Sharma is bullish on RPG Life

“I think once we break the 18,600 mark which is where the maximum put writers are present, that is where Nifty should also see weakness extending,” says Rahul Sharma, JM Financial Services.

First of all, the resistance which we are facing around the 18,800 level and even 44,200, 44,000 on Bank Nifty, how do you read this resistance zone and also what are your trading ideas right now?
Today was a good day for the Nifty to out of the previous all-time high. We have seen Bank Nifty particularly struggling and now that we have seen a breakdown below the 20-day moving average. I think for the time being considering the way some of the banking heavyweights are placed, it seems like it should be a ride downwards. Speaking of Bank Nifty, 43,500-43,400 is where we see the banking index sliding to as an immediate target.

And Nifty, I think once we break the 18,600 mark which is where the maximum put writers are present, that is where Nifty should also see weakness extending.

So, as of now, it seems like Bank Nifty is the one to go for if you want to play the market on the downside. The best thing to do is look to buy the 43,500 put options for the next weekly expiry, trading somewhere close to around 175 odd, have a stop loss placed at Rs 100 and I think there is a good possibility that Bank Nifty slides down and this option sees a target of around Rs 300 on the upside.

So, on the Nifty, it is particularly a no-trade zone. One can look to take a directional trade once either 18,600 is broken on the downside or we come out of this rut and the momentum especially from the index heavyweights comes back right in. So, for Nifty, I think it is going to be a slightly longer road ahead, whereas Bank Nifty seems to be a clear favourite for fresh shorting at these levels.

In terms of the broader markets, that has still managed to be on the better side in terms of the performance coming in as well. Even when you look at today, the Nifty midcap, small-cap still holding on to some bit of a gain over there as well. What is your view on that midcap, small cap space? There is a lot happening in that space as well.
If you have made money on the mid and small cap space, if you simply see the mid and small cap indices, the RSIs are above 85, 86. Clearly, it is heavily overbought territory and historically whenever we have seen the daily RSIs climb to such highs after such a big directional move, we have seen cooling offs happening and significant cooling offs happening. So, I think the best thing to do is maybe not short but at least look to take money off the table, book profits in pockets where the rally has happened. So, mid and small cap is clearly one sector where we have seen the technical targets being done for the current up move.

Another sector to watch out for is auto index, then you have realty index. There are a few of the sectoral indices where we feel are very overheated and it is best to be not greedy at these levels.

Whereas, comparatively, I think public sector enterprise stocks are one where there is still room on the upside. It is still having the decadal breakout that we have spoken of multiple times.

So, PSE as a space looks very good. Metals is another cyclical where we feel metals should outperform going from here and there is a good 15-20% upside to be had in the next couple of months in the metal space as well.

How would you look at Reliance Industries, that stock has not participated a whole lot. In fact, last two days early signs have sparked there. Can that one be a good space to be in if I want to book profits, but I do not want to be out of the market?
Absolutely. So, you hit the nail on the head. Reliance is one of those Nifty 50 heavyweights and it is actually one of the bigger stocks in the index which has not participated in any way. So, I think there is more upside to be had in Reliance Industries. Technically speaking, these are green shoots. Like you said, since last three trading sessions, we have seen good buying interest happening and this was backed by a rise in delivery quantity as well.
So, I think 2750-2700 now is very much a likelihood in Reliance in the next one month or so.

And structurally speaking, this is a good catch-up rally that one can expect in this heavyweight. So, one can stay long in Reliance. We have initiated around 2500 long in Reliance for our clients. One can still look to add at these levels as well. The stop loss can be placed at 2450 odds, so now around 100-point risk on the downside but considering the way the stock has underperformed, I think just the catch-up can mean Nifty maybe not cracking in a big way. The stock is going towards Rs 2700 and once probably a new rally starts, we could very well see 3000 mark towards the end of the year as well.

So, I think not only from a short-term betting perspective, but also from a six-month perspective, one can look at it. We are pretty much bullish technically as well as fundamentally on the same.

One more thing I want to understand, if you could give us and shed some more light in terms of what is happening in the pharma space. Overall, we have seen that buzz increasing a lot. First, it was just in terms of some of the healthcare names. Now today we are seeing in terms of hospitals as well. What is your view on this, any specific name that you would pick out from this sector as well then?
Pharma has been quite a revival of sorts in the last 3-4 months or so and it has not really taken a pause in any way. I think there is more upside to be had. In terms of the pharma index, 13500 is where we see the index at. So another 3-4% up move is very much possible in the very short term. And structurally we feel that this is one of those areas of the market, especially when the broader market will find it dicey, this is relatively a safer haven to be had. In terms of stocks, which can be looked upon on the long side, Sun Pharma is something that we particularly like.

The stock, again a heavyweight, not performed, at the cusp of a big reversal. It is consolidating around the 1000 marks since the last 5-6 trading sessions. We feel that there is a good risk reward to be had in Sun Pharma. So if you have a one-month perspective, I think this is one stock which can be played on the long side. There is a very high possibility of a new all-time high being tested in Sun Pharma. It can be bought in delivery, maybe have a stop loss placed around 940 odd. And I think this is one of those blue-eyed boys of the yesteryears which can come back to the limelight, especially in the pharma space.

I want to talk about small cap pharma space, RPG Life. It is a RPG group company and it did very well last year, then went to a consolidation. Now two days before the analyst day, the stock is kind of getting active once again. What does the chart tell you of RPG Life?
Chartically speaking, this stock has been relatively an outperformer. The very current structure is a bullish pole and flag pattern that it is developing, which is essentially a continuation pattern. We saw a good rally happening from 800 odd levels. It took a bit of a breather around 930-935. I think now there could be another round of up move where we should see the stock crossing the 4-digit mark. So along with this sector, I think this stock can also do well. So one can stay invested, one can stay long in this one. I think there is a good 6-7% upside to be had in the very short term.

And structurally speaking, as long as it manages to sustain above the 800 mark, this is a very good stock to be had in the portfolio as well.