Markets may be near record levels, but Gautam Shah of Goldilocks Global Research believes the rally still has legs. He expects the Nifty 50 index to first test around 26,700 in the near term and move towards 27,500 by January.

“We have indeed seen a breakout. The news flow has got supportive, the breadth is getting better… All dips should get bought into, and the markets are headed for new lifetime highs and beyond. From a medium term perspective, we stay positioned for levels of 27,500,” Shah told CNBC-TV18.

Shah sees strong support for the index between 25,325 and 25,400, as long as that zone holds. He expects the next leg of the rally to be driven by mid-cap and small-cap stocks, which have lagged so far.

The mid-cap index, he said, needs to cross 60,000 for a potential 3,000-3,500-p

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