What we did in the first part of the week got completely undone on Friday with that vicious steep fall of 600 points. Now at 14,565 when a lot of key levels on the index got challenged. What is your take next? Do we see more of a selloff coming in given that this was a steep breakdown across sectors and for the benchmarks as well or do you think with Friday’s fall may be on Monday we are going to see some amount of respite?
The major part of the trend for the index would probably depend on how and why this correction actually started off. So the US bond yields could probably be the first port of call which could probably give an indication of where the global equity markets are heading because I think that is the more important structural view in terms of trends.
In terms of market data, what transpired is that when you start an expiry after such a fabulous month of February where the indices gained more than 10% plus in a matter of 15-20 trading sessions and it being a short expiry as well there was a lot of nervousness for short-term traders and so there was consistent correction. So last week also we went through a 600-point correction, then a bounce back and then a fall of another 600 points on the Nifty on a single day.
Now the third and most important point is that whether there is a risk-on mode which is still there or whether the markets will go into a risk-off mode. Clearly there was a very strong signal which emerged throughout the trading session that there was a clear demarcation towards risk for traders where we saw lot of large cap names going at the brunt of selling.
So whether it was the likes of ICICI Bank, Axis Bank, IndusInd Bank or whether it was the NBFC names like Shriram Transport, etc, we saw across the board selling, even names like TCS, etc, succumbed to selling pressure as well.
And the final point which is again a very important key is that whether there will be an aggression from short-term traders.
Looking at the options data, for the current week expiry which is the 4th March expiry, 14,800, 15,000 and even 14,600 calls, I have seen some aggressive writing and that generally happens when traders anticipate that this is now the next ceiling or resistance for the index and it is going to be very difficult for the index to scale pass. So all of the data points indicate that it is going to be a tough market for the next week or so and possibility that the index may drift lower is very much on the higher side.
What exactly is the outlook when it comes to those beleaguered banks because they definitely have taken a hefty knock. Do you think when we do see that recovery kick in that banks will perhaps be the first ones to lead from the front or do you think that there will be that sense of lagging within the banking basket?
It is a very-very interesting question because this market in the last 10 months has shown us so many different colours. Now let us start off with the March recovery where we saw first Reliance Industries doing pretty well, then the stock moved up into a new zone altogether for itself, remained sideways and then the market just about forgot what Reliance did from September on and the stock has been dragging lower. Same happened with the Nifty IT and the pharma sectors as these stocks have done exceptionally well and then these stocks all of a sudden had gone under the traders radar. Now no one is generally discussing more on the Nifty IT and pharma stocks and so these stocks have also gone through a downward drift.
I would expect that the best part of the gains for the Bank Nifty as well seem to be behind us and there is a very strong possibility that the markets may look out for maybe some other cues or some other sectors because this is a churning effect which the markets have clearly shown.
We have seen this pattern almost three or four times in the last nine months so there is again a higher probability that if there is a change of trend, then this pattern would probably come back again and we might see the leading sector towards the previous rally getting into a consolidation or a correction zone. So in that aspect, it is a very important question but I believe Bank Nifty could be the one which could drag from here on and it is going to be difficult for the Bank Nifty traders to try and make strong convictions on trend pick up on the upside.
But on the other hand there is one sector which I want to discuss upon. I think it is the PSU stocks overall. So, overall PSU names are looking quite strong. We have seen very good momentum building up into these names. So if there is any sign of a pick-up of trend, then the markets could probably shift from the traditional banking names towards these individual PSU stocks.
It is intriguing, I know we have talked about the Nifty Bank time and again because with the rise of the market, it is banks leading the way. On the way down, it is again banks. What is your reading on what the charts are saying because this is a serious breakdown on some of the big heavyweight banking names today?
Absolutely and frankly a drop of 2000-2500 points on Bank Nifty in just a matter of couple of days becomes very-very difficult to digest for any kind of a trader whether it is an individual trader or even if it is an institutional trader. But then this is what happens typically when the markets are too much dependent on just one or two key sectors. Now if you look at the post budget rally, in fact from the day of the budget rally there were just two important sectors which did exceptionally well. One of them was the banking stocks both the private sector and the PSU names and the second one was the financial services sector. We saw a very strong recovery coming into these names. I am not talking of the midcap names or the other midcap sectors but primarily these were the two key sectors which took the heavy weight at a time when there was a huge underperformance from auto, IT, pharma and FMCG. So this is why the market becomes a bit more polarised over here. So as we saw the month of February, the markets were moving up higher but there was this sense of polarisation that it is very specific towards only two or three key large sectors which are taking the weight on the front. If we see any kind of a slippery wicket where these sectors get into, then it becomes difficult for the other sectors to try and take the load on. So I think now for the markets to get balanced, we need to see both the reactions whether there is an incremental selling in the Bank Nifty which I possibly think should come across again. On the other hand, we need to also see what approach will the markets take whether it will be a risk or whether it will be a defensive approach. Also, we need to see whether there will be buying in the traditional IT, pharma and FMCG names. If that is the case, then we are talking of probably a downward drift on the Bank Nifty, even a 34,000-33,500 range would be a fair possibility if we see those patterns changing up. So risk-off mode is the major concern now for Bank Nifty and if that happens, then we could see more downward pressure on the index.
For the week ahead, any stocks that you are keeping on your radar or any trades you think one must look to execute come Monday morning?
Yes, one buy and one sell depending on how the markets open up on Monday. First one which I am suggesting is a buy on Deepak Fertilisers. I think that stock has done pretty well for itself. Deepak Fertilisers closed at the highest point of the week as well on the back of some strong momentum so that is a buy with a target of almost Rs 198 and stop loss could be kept at Rs 178. The second one is a sell on ICICI Bank. I am expecting the banking stocks and especially the private sector banks to go through one more round of weakness. So I suggest a sell on ICICI Bank with a target of Rs 575 and a stop loss at Rs 617.