It has been a turbulent week, volatility is back in a big way. How do you sum up the action of the week that was and what are the key cues that you are looking forward?
This was a choppy week for the markets because the handover which was given to us from many of the global indices and the kind of news flow the markets have been trying to grapple with, has kept the markets on an edge. But even with this volatility, markets have still not settled into a trading range for itself. Typically what happens is that the volatility at the start of any kind of an event is higher and when the event passes, the volatility tends to ebb off. But we have not seen that happening for the markets this time around.
Add to that, the bigger worry for the markets is the lack of some strong sectors making a comeback over the last one month, particularly the month of January. In the first few days of February, the Bank Nifty did exceptionally well for itself. Market had support from other sectors like auto and then metal stocks also did reasonably well for themselves, but somehow over the last couple of days with the volatility coming back, the sector strength has somehow gotten a bit more dissipated for the markets. So that is adding to the woes of the market.
We would now be looking out for more cues from what happens across the globe, I think that is going to be the major trigger for the markets. If the global volatility ebbs off, you will see the US markets and the European markets managing to make a comeback. Then we could be in line for some durable recovery over the next couple of weeks. But till the time the global volatility increases and intensifies, we could continue to trend like this.
Broadly 17,000-17,050 is a very strong medium support for Nifty50. On the upside, 17,800 seems to be a bigger resistance for Nifty50 over the near term.
Broader markets were also not spared by the carnage of the week gone by. Mid and smallcap indices in particular have lost about 2.5% and 3.5%, respectively. What is the advice when it comes to the IT basket because that index too has come under quite a bit of pressure and in Friday’s session in particular there were a lot of those names like Mphasis, KPIT Tech and Coforge that were really pounded hard, Are the chart readings indicating that this pressure is going to continue for some time?
Right from the start of 2022 this year, I have been maintaining this view that there is likely going to be the sector churn where the IT index may start to get into a corrective phase, and the banking, the autos or the erstwhile high beta rate sensitives are the ones which could try and get back into traction.
Now with the IT stocks and if you look at the charts over the last one and a half odd months, many of these midcap IT stocks specifically the likes of Coforge, MindTree, L&T Technology Services and L&T Infotech have shown clear signs of struggle. Even the large cap names like Wipro when you look at the charts the stock which has corrected more 14%-15% from their previous major swing highs. There have been very few and feeble bounce backs in between for the stocks.
We are now into a phase where there is more of long unwinding into the Nifty IT stocks both the midcap and the largecap names – more on the midcap because of the overweight nature of the stocks and the high position which was taken into these names. I think it is bound that this long unwinding pressure would continue for some more time. Of course large cap names could fall a bit less because of the inherent strength and the lower beta in these pockets as compared to the midcap IT stocks.
What are your picks for the new week? In the past you have talked about banks as being a sector that you prefer. Has that factored in the picks that you have?
Banks remain one of the top sectors in terms of price performance. They look quite strong, but now looking at the market construct, the susceptibility of markets towards volatility, many of the stocks have given signals of breakdown. So I would suggest two shorting ideas over here. The first one is apparently from the auto ancilliary space and that is the tyre stocks. Balkrishna Industries has given a double breakdown on charts broken below 200 day moving average swing support as well. So would suggest that as a shorting idea first recommend as a sell target of Rs 2,080 and stop loss could be kept at Rs 2,220 mark. The second would be from the midcap IT name. I still believe that there could be more correction or selling pressure which could be in line for midcap IT stocks. Coforge is what I have picked up as another shorting candidate. Classical patterns on the stock on the daily charts. It is forming a bearish flag pattern on the daily time frame and the stock is on the verge of breaking down below this bearish flat pattern for itself so would suggest a sell on Coforge targets of Rs 4,250 and a stop loss at Rs 4,625.
