In an interview with ETMarkets, James said: “Out of the 4 times when Nifty IT index entered the earning season on a low base with negative returns in the 15 days prior to the earnings month, an average of 5.4% return was registered in the next 30 days encouraging us to scout for upside bets in this sector,” Edited excerpts:
The first week of January started off on a negative note. What led to the price action?
Worries over fresh covid outbreak, as well as rate hike threats, have continued to torment prices, despite these twin elements not coming off as a surprise.
This points to an inherent weakness, and lack of desire to push higher. Upcoming budget has also prompted traders to move to cash.
Do you see the weakness continuing in the second week as well? What are the important levels that one should track for Nifty and Nifty Bank?
From the doorsteps of 19000, the sustained decline was disappointing, though not unexpected. However, the psychological mark of 18000 failed to trigger a solid bounce, and appears to have rattled traders, prompting talks of 17500-300, also evidenced by Nifty put option activity.
Consequently, the Nifty50 is back to the vicinity of the low last witnessed in Christmas week, on 23rd December.
However, it appears that for now, this is more of a Nifty event, with bears yet to dominate the broader market as much as Nifty.
Incidentally, while 46% of Nifty 50 stocks fell below 23rd December’s low, only 18.6% of NSE 500 stocks fell below their respective lows of the same day.
Further, only 10% of small caps have a new low. Additionally, earnings performance analysis since 2020 shows that Nifty has given a positive return in January every time a negative return was seen in the last 15 days of December.
Both these analyses encourage us to hunt for reversal chances in the coming weeks. Nifty will find the 18040-18150 region a challenge to overcome next week, but a successful break will clear for short covering rallies aiming 18320.
Alternatively, an inability to clear 18070 or a direct fall below 17770 will call for 17500-300, but such a collapse is less favoured.
Any particular strategy that traders can deploy on Nifty ahead of Budget?
After languishing in the 12 vicinity for a while, VIX has bounced back above 15, improving volatility and premiums.
This has begun to show in straddles, encouraging us to look at straddle plays, or 17800-18000 strangles, with the expectation of a newer range this month.
Besides, a stock-specific approach is also preferred given earnings opportunity, rather than taking a directional approach on the index.
Infra, as well as the industrials Index, rose more than a percent – are we seeing a pre-budget rally?
, , , and ABB, the top 5 stocks in terms of weightage which form 33% of the Index, contributed 38% to the Index gains this week led by and Siemens.
With 69% of stocks still trading above 200DMA and 48% of the stocks still having RSI_14D below 50, we should expect more upside in the sector.
Infra: Largecap segment which has 70% weight in the Infra Index formed 57% of the losers led by
which forms 35.7% of the Index.
Oil marketing companies prevented a big fall in the index with all three companies giving an average 5% return this week.
Utilities and IT fell more than 1% — what led to the price action?
Utilities: 77% of the losers were from the Large and Midcap segments contributing 84% to the fall in the Utilities Index and 90% of the gainers were from Smallcaps.
44% of the fall in utilities was contributed by the Adani group stocks which forms 60% of the BSE Utilities index.
While 48% of stocks are trading above 200DMA, 75% of stocks have moved below 5DMA which could be an early indication of some profit booking in the coming days.
IT: FPI sold IT stocks worth Rs.3579 crore in December which is ~93% of what they bought in November. Largecap stock which constitutes 88% of the IT Index, saw an average -2.6% return last week.
, , , , and saw an average of 3% cut in price in the last one week. Incidentally, 71% of Losers this week were from the Smallcap segment with an average -2.7% return. Also, 89% of Gainers this week were from the Smallcap segment with 2.82% return.
IT companies will be declaring results in the coming week. How should one play TCS ahead of results on Monday, Infosys, and on Thursday?
IT stocks will be entering the results season on a low base and makes up for positive surprises. Incidentally, 59% of the time Nifty IT Index gave an average 6.4% return during the earnings period.
Out of the 4 times when the Nifty IT index entered the earning season on a low base with negative returns in the 15 days prior to the earnings month, an average of 5.4% return was registered in the next 30 days encouraging us to scout for upside bets in this sector.
Infosys: If history is to repeat, there is a 50% chance of 9% move in Infosys post earnings. Out of the four times when %return during the previous 15 days of earnings were negative, three times Infosys saw an average 15% move in the next 30 days.
TCS: 40% of the time, TCS gave an average 7.5% return during the post-earnings period. Out of the 3 times when %return during the previous 15 days of earnings was negative, TCS saw an average 7.7% move in the next 30 days.
HCL Technologies: 68% of the time, HCL Tech gave an average 8.8% return during the post-earnings period.
Any 2-3 trading ideas for the next 3-4 weeks?
: Buy| LTP Rs 716| Target Rs 740 – 780| Stop Loss Rs 684| Upside 9%
After the run-up that we saw since July which ended in November, the stock has been in a consolidation mode in December. An attempt is being made to break above the triangle chart formation which has been in place since November.
Also, the stock has broken above the PSar and the MACD has broken above the signal line in the daily time frame favoring positivity in the coming days.
We could see the stock moving towards 740 initially and thereafter towards 780 in the next two to three months. Protect longs with a stop loss placed below 684.
: Buy| LTP Rs 585| Target Rs 625 – 650| Stop Loss Rs 567| Upside 11%
After the correction that we saw in December, we could possibly be looking at a bounce back towards 625 initially which forms the 61.8% Fibonacci retracement level of the December high and low.
Also, in the weekly time frame, the stock has bounced off the 61.8% Fibonacci retracement level of 551 last week and has made an inside bar Doji this week.
We expect the stock to see a current bounce continuing towards the 625 – 650 region in the next two to three months. Protect longs with a stop loss placed below 567.
: Buy| LTP Rs 360| Target Rs 377 – 390| Stop Loss Rs 343| Upside 8%
The stock has been in a corrective mode since the middle of December and has seen a candle resembling Bullish Marubozu with MACD forest showing exhaustion at lower levels hinting at a near-term pullback.
We expect the stock to initially move towards 370-377 and thereafter towards 390 in the next two to three months. Protect longs with a stop loss placed below 343.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)