Banking, IT can drive Nifty breakout as broader market rally continues: Gautam Shah

Indian equities could be headed for an upside breakout if geopolitical risks remain contained, with banking and information technology (IT) expected to lead the move, according to Gautam Shah, Founder of Goldilocks Global Research. He believes the broader market still offers better opportunities than large-cap stocks and expects India's relative performance against global markets to improve further.

Shah said the Nifty has been trading in a range of 23,800 to 24,600, but the setup points to an upside breakout. He added that the underperformance of Indian equities versus global peers over the past 18 months appears to have ended.

Shah said the worst for the Reliance Industries appears to be over after months of underperformance. He expects the sector to recover over the next six to nine months, with the IT index targeting 30,200 initially and potentially 30,500.

"I wouldn't be surprised if the IT index were to recover 15% from these levels. But you have to give it six to nine months probably," he said.

Shah prefers mid-cap and small-cap IT companies over large-cap names, saying niche businesses linked to artificial intelligence (AI) could outperform as investors look for AI-related opportunities in India.

Beyond IT, Shah remains constructive on the broader market. He said micro-cap, small-cap and mid-cap stocks continue to be in a bull market, noting that the micro-cap index has already gained about 28% from its March lows. He expects broader market indices to deliver another 15-20% upside, compared with around 7-8% for the Nifty.

Among sectors, Shah remains positive on the Adani Group, real estate, power, public sector undertakings (PSUs), banking, non-banking financial companies (NBFCs), housing finance companies (HFCs), travel and tourism, and service consumption. While he believes fast-moving consumer goods (FMCG) has bottomed out, he said it may take longer to recover and is not his preferred consumption play.

He also said India's improving relative strength reflects the market having already priced in concerns around consumption, foreign institutional investor selling, crude oil prices and AI-related disruption.

Shah said the recent correction in gold and silver has created a fresh entry opportunity. He identified around $3,900-$4,000 per ounce for gold and around $55 per ounce for silver as favourable levels, although he does not expect either metal to revisit their previous highs quickly.

Discussing index heavyweights ahead of the earnings season, Shah was cautious on Reliance Industries, saying the stock could remain range-bound from a technical perspective. However, he expects banking stocks to surprise positively if earnings exceed subdued market expectations.

According to Shah, a sustained Nifty breakout is likely to be supported by strength in banking and technology, making them the key sectors to watch over the coming months.

For the full interview, watch the accompanying video

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