Muhurat Trading Strategy: Focus on large-cap stocks amid market volatility, says Rahul Sharma of JM Financial; Add RIL

Muhurat Trading Strategy: The Indian equity market experienced volatility and pressure in October, with both the Nifty 50 and Nifty Midcap Index dropping 7% from their peak levels of 26,216 and 60,851, respectively, due to significant sell-offs by Foreign Institutional Investors (FIIs). While the broader indices have decreased by 7%, Rahul Sharma, Director and Head of Technical & Derivatives Research at JM Financial Services, noted that there has been a substantial correction in stock prices, particularly among midcap companies where earnings fell short of expectations.

As noted by Sharma, the past two years have shown positive returns during Muhurat Trading, which is a one-hour trading session held annually on Diwali. However, the disappointing earnings reports for Q2FY25 have raised concerns about potential earnings downgrades, leading him to believe that the broader markets appear overvalued.

In regard to Muhurat Trading 2024, Rahul Sharma recommends that investors and traders concentrate on large-cap stocks due to their comparatively reasonable valuations. He also suggests being discerning with mid-cap stocks, which present growth opportunities at fair valuations, as the elevated valuations of mid/small-cap stocks provide minimal margin for safety.

Additionally, investors should have more realistic return expectations following the extraordinary rally in the SMID sector over the past two years and steer clear of speculative or momentum stocks, instead opting to invest in companies that show a low risk of disappointing earnings.

"We prefer sectors like Private Financials, Metals, capital goods (new growth business), specialty chemicals, healthcare and large cap IT. We believe that large part of correction in PSUs/Industrial space is over and future stock price performance would be a function of earnings growth and visibility on new/repeat orders until then these sectors would see a phase of consolidation," added Rahul Sharma.

Technical View for Samvat 2081

We expect the Nifty 50 to stabilize around the 24,000-mark post which markets can begin its recovery phase. The good thing about October is the way this month is ending with decrease in the bearish aggression of FII’s in cash and derivatives. Technically we remain positive for 25,500 in the next couple of months for Nifty 50 and dips if any can be utilised as buying opportunity.

Trading Strategies for Samvat 2081

One can look to initiate a bull spread in Nifty 50 in November monthly expiry by buying the 24,500 Calls around ₹450 and selling the 25,200 Calls of the same expiry around ₹150. Next outflow of the strategy is ₹300 while max profit potential is placed at ₹400.

Investor Recommendations for Diwali 2024

Rahul Sharma, Director, Head - Technical & Derivatives Research at JM Financial Services advise to create a basket of stocks primarily from the largecap space comprised of below stocks – ICICI Bank, Infosys, Tata Power, Bajaj Finserv, Lupin, Oil and Natural Gas Corporation Ltd (ONGC), HDFC Life Insurance Company Ltd, Tata Chemicals, National Aluminium Company Ltd (NALCO) and Dixon Technologies (India) Ltd.

Stock Recommendations

Traders can look to add Reliance Industries Ltd (RIL) at current levels for targets of ₹1,400-1,450 and stoploss of 1,300.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.