If the market decides to breach 9,900 levels, then the next major support appears to be in the 9,736–9,685 zone, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in, said in an interview to Moneycontrol’s Kshitij Anand.
Q: It was a volatile week for Indian markets and a lot has changed on the charts. The Nifty broke below its crucial 200-DEMA and 10,000 level for the first time since October 2017. Do you see the further pain in the market for the coming week?
A: The first four day’s price action of Nifty50 was almost neutral with two positive pull back candles and two bearish candles. But, Friday’s huge gap-down, accompanied by global uncertainty, created havoc in Indian markets.
This has technically tilted the balance in favour of bears who are already on a rampage since February 2018. However, as the market already corrected in the last two months, with a price damage of around 10 percent, the incentives for bears after Friday’s gap down opening appears to be little.
Hence, around current levels, which is close to the critical 38.2% retracement level of the entire rally from December 2016 lows of 7,893 to 11,171, some sort of stability can’t be ruled out.
If the market in its own wisdom decides to breach 9,900 levels, then the next major support appears to be in the 9,736–9,685 zone.
Interestingly, on the price chart, the Nifty50 spent considerable time in August last year as it consolidated between levels of 10,135 and 9,685 for eight-weeks before breaking out. Hence, 9,700 level assumes a lot of significance and can be considered as sacrosanct support on the downside.
Q: How are FIIs positioned in the market? Do you think the Fed rate hike and fears of trade war could push them to change their stance towards Indian markets?
A: In February, foreign institutional investors (FIIs) remained net sellers to the tune of Rs 11,037 crore, but till March 22 they remained net buyers to the extent of Rs 8,368 crore before Trump’s tariff mania hit the market.
It means that in March FIIs were bit positive. The Fed rate hike was known and was hence well factored in the price. But now there is a lot more uncertainty on account of newly started tariff war.
If one were to look at the trade statistics, one would be compelled to conclude that India may not be much impacted by this in the long run. India is the United States ninth largest trading partner and maintains a miniscule trade surplus of around $23 billion, unlike China which has a huge trade surplus of around $375 billion.
Hence, we are of the view that FIIs may not worry much on account of these two factors unless the trade wars escalate and more members like China or the European Union etc also start retaliating against the USA which will certainly lead to a slowdown in the world economy.
FIIs may worry more about domestic issues going forward. One is on PSU banking front. The Nirav Modi saga should turn out to be a blessing in disguise, provided the government implements radical reforms in the PSU banking space and aggressively consider selling at least some of the smaller banks to private players. By doing so they would be setting an example that they are committed to hardcore reforms when it is the need of the hour.
This may provide a much-needed fillip to the domestic economy and also help in winning over the confidence of foreign investors.
The second domestic issue which may worry FIIs is the 2019 general elections. Recent electoral results suggest the emergence of new alliances which has the potential to strongly challenge the incumbent government in the 2019 polls.
In that case, lack of a political alternative or strong government may temporarily keep FIIs in dilemma about the India investments.
Q: What should be the ideal strategy for mid- and small-caps which are underperforming benchmark indices by a wide margin?
A: The mid and small-cap space has already taken a severe knockdown. As growth visibility improves and fundamental news flows strengthen, investors should focus on quality names and use this correction to accumulate stocks at lower levels, preferably on declines up to 9,700, in a staggered manner.
Q: What should be the strategy – buy on dips or sell on rallies – in the coming week?
A) Long-term trends for Indian markets are still positive. The current correction can be a multi-month corrective phase inside a long-term bull market.
Since 2014, we have seen vertical rallies as well as multi-month corrections on a couple of occasions. For instance, after a vertical up move of 13 months from the lows of 5,933, the market topped out at a high of 9,119 in March 2015 and was in corrective mode for the next 11 months.
Similarly, in September 2016, the market took a breather for four months. Now, after witnessing 13-months of vertical up move from the lows of 7,893 to 11,171 we hardly spent two months correcting.
Hence, the present correction has a lot more time to go before ushering in a big up move. Time-wise, this correction can last for another two-to-three months.
But the bull market is certainly not over. Hence, dips should be bought into for one more leg on the upside which should take indices beyond 11,200 levels over a period of time.
Q: What are your top three-to-five technical stock picks at current levels?
A) Even in this carnage, there are certain scrips which managed to keep their head above the water and hence can be considered for long side trading in next week.
JK Lakshmi Cement: BUY | Target: Rs 503| Stop loss: Rs 405| Return: 11%
For the last couple of weeks, this counter was in consolidation mode in the range of Rs 440–410 levels and appears to have broken out of this range in Friday’s session. Hence, traders can look for a target of Rs 503 and consider buying now and on declines up to Rs 425 with a stop of Rs 405.
Pidilite Industries Ltd: BUY | Target: Rs 970| Stop loss: Rs 885| Return: 7%
This counter appears to be in a pause mode after a vertical rise from the lows of Rs 858 to Rs 924 levels. As long-term trends are looking quite attractive, and the fact this scrip is consolidating near its lifetime highs, there is more upside once it breaks out of the range. Hence, this corrective phase should be utilised by traders to go long in this counter for an initial target of Rs 970 with a stop loss of Rs 885.
Power Grid: BUY | Target: Rs 211 | Stop loss: Rs 187| Return: 8%
With seven months of correction from the highs of Rs 226, this counter appears to have hit a bottom after retracing 62% from November 2016 lows of Rs 166. Correction at recent lows of Rs 190 appears to have ended in this counter as it started building a base in a narrow range of Rs 190-199 levels.
Once it breaks out above Rs 199 then a fresh leg of uptrend shall start with an initial target of Rs 211. Positional traders should buy into this in anticipation of such a breakout, and a stop loss advised for the trade will be Rs 187.moneycontrol