Chances of a breakout towards 10,900 possible; 3 stocks which could give up to 12% return

As long as the market consolidates without such a breakdown, chances of a breakout will remain higher with a target of 10,900 levels, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol, said in an interview to Moneycontrol's Kshitij Anand.

Q) It was a volatile week for Indian markets. There was one thing which was clearly visible that we are in sell on rallies kind of market. How is the coming week expected to pan out for investors?

A) February was undoubtedly a bad month for the markets with a highest monthly percentage loss since December 2016 lows of 7893. This appears to have tilted the balance in favour of bears for time being.

But, on the weekly charts markets appears to be in a consolidation mode in the larger zone of 10,630 – 10,300 levels. Hence, we can’t outrightly say, at this juncture, that it is a sell on rallies kind of market.

But, the bigger selling opportunity may not arise on rallies but on a breakdown below 10,300 on a closing basis, it will result in the resumption of the down move.

Hence, as long as the market consolidates without such a breakdown, chances of a breakout will remain higher with a target of 10,900 levels.

Q) How are FIIs positioned in the markets? They have already sold over Rs 10,000 crore in the Indian market in February as per provisional data.

A) There were several issues to grapple with for foreign institutional investors (FIIs) in the month of February especially after being net buyers to the tune of USD 2 billion in the month of January.

There seem to be both internal as well as external issues for FIIs to remain net sellers in February. On the domestic front, LTCG is surely a disappointing factor though many may not acknowledge it openly.

Then we had PNB fiasco unfolding which raised doubts about the financial stability of PSU Banking space especially when everyone on the street was presuming that the PSU Banks come back on their feet after the recapitalisation plan.

On the global front, it is almost sure now that there will be multiple rare hikes from Fed in 2018 apart from global volatility we have seen in recent times.

So, for the global money managers, it looks prudent to reduce exposure to emerging market space like India which are relatively more riskier when compared to developed markets.

Q) What should be the ideal strategy for mid & small caps post Budget which is attracting some bit of selling pressure?

A) Already BSE Midcap index is down by 14 percent since January 2018 highs of 18,321 to 15,776 levels whereas BSE Small Cap index is down by about 16 percent from the highs of 20,183 to 16,944 levels.

It means that individual scrips in this space would have easily gone down by 20-30 percent. Hence, selectively one can shop in this space and unless Nifty50 breaks down below 10300 levels they may not see more pain going forward.

In other words, risk rewards can be very favorable in this space provided Nifty50 doesn’t break down below 10300 levels.

Q) What should be the strategy - buy on dips or sell on rallies in the coming week?

A) On the weakly charts, a shooting star kind of formation is seen with a long upper shadow suggesting lack of conviction at higher levels. Hence, more pressure can be seen if Nifty50 settles below 10,447 levels in Monday’s session.

But, the larger picture of the last 4 weeks is suggesting that Nifty50 is in a broader consolidation mode between 10,630 – 10,300 levels. Hence, bigger price damage should not be expected unless 10300 is breached on a closing basis.

However, to answer your question opportunities do exit on both sides but after this kind of correction, in our opinion, risk-reward ratios will be more favourable towards long side trades unless the lower end of the trading range is broken down.

Q) Top 3-5 stocks (with timeframe) which are looking attractive at current level based on technical?

A) In this side consolidation phase also there appear to be good long side trading opportunities available:

Tata Motors: Buy | Target: Rs 425 | Stop loss: Rs 356| Return 15%

This counter appears to have hit a bottom at recent lows of Rs 356 as it appears to have registered a double bottom around these levels as it resumed its upmove from the said low on relatively higher volumes.

Hence, sustaining above these levels an initial target of Rs 398 can be expected but a higher target of Rs 425 can’t be ruled out over a period of time. A stop loss for the trade should be placed on a close below Rs 356.

Asian Paints: Buy | Target: Rs 1164 | Stop loss: Rs 1095| Return 4%

This counter appears to have strong support around 1100 kind of levels as it repeatedly bounces back after testing this point.

As a couple of days back it recoiled strongly after testing the said support on relatively higher volumes there can be an opportunity to go long for a target of Rs 1164 with a stop loss below Rs 1095 on a closing basis.

Tech Mahindra: Buy | Target: Rs 669 | Stop loss: Rs 600| Return 9%

This counter appears to be positioning itself for next leg of the rally as it is consolidating after retracing 62 percent of its fall from the highs of Rs 748 – 356 levels. Hence, as long as it sustains above Rs 602 levels traders can look for targets towards Rs  669.

In between, there can be some hiccups around Rs 630 levels but once it is conquered then bulls in this counter can easily march towards its next logical target of Rs 669 levels. Stop loss for the trade should be placed below Rs 600 on a closing basis.