Market participants believe that the supply side shock is likely to get converted to demand destruction or deferment further pushing the economic recovery
The Nifty50 is just 200 points away from breaking 11,000 and looking at the current selling pressure, a breach of 11,000 mark is quite likely, Rajesh Palviya, Head – Technical and Derivative Research, Axis Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:Q) Sensex and Nifty50 witnessed one of their worst falls in the week gone by. What is the way ahead for markets?
A) Indian markets are currently in risk aversion mode which is seen in global markets on account of the supply side disruption and disproportionate dependence of global economy on China across various sectors.
Further, the market participants believe that the supply side shock is likely to get converted to demand destruction or deferment further pushing the economic recovery.
The market is also fearing that the supply shocks/demand destruction may get escalated into defaults of leveraged companies (or countries), thus leading into global NPA in the banking system or a bailout by IMF.
The sentiment would improve if individual governments and/ or central banks take necessary measures, be it fiscal or monetary measures to contain the fallout of drop in economic activities.
These moves may not immediately improve the businesses but it would certainly contain the risk off sentiments. Indian markets would follow the direction taken by the global markets in the near term.
Q) Nifty fell over 3% in the February series. What is the outlook for the March series? Do you think Nifty50 will breach 11,000?A) The Nifty50 is just 200-points away from breaking the 11000 mark and looking at the current selling pressure, a breach of 11000 mark is quite likely.
On the other hand, a close above 11535 (28th Feb gap resistance) is necessary for the bulls to regain strength for the near term.
Looking at the derivatives data, the highest PE concentration for weekly and monthly series is placed at 11,000 strike price which indicates Nifty would try to find support in the range of 10900-11000, but any breakdown below 10,900 would open the lower range up to 10,600-10,500.
However, on the higher side, 11500 is having the highest CE concentration for weekly and monthly series is likely to act as a major resistance on the higher side.
As of now, the possibility looks weak for 11800-12000 level in March series. Frankly, looking at the pace of selloff, it is still difficult to take a view at which level market will hold the support, as the derivative data is changing every day very fast based on the major supports are taken out on daily basis.
India VIX surged approximately 70 percent during the week and reached to level of 23 which indicates high volatility and we are going to witness big swings in the near term.
Q) Where do you see rupee heading in March? Do you see more depreciation?A) Last week we have seen a surge of 1 percent in USDINR and it is approaching towards 72.60 (Sept 2019 high). A close above those levels will be crucial to watch. 28th February has clocked the highest daily volume since 2014 indicating strong participation in the current uptrend.
A weekly close above 72.60 (USDINR March Futures) will confirm the channel breakout of range (70.60 -72.60) which can take USDINR towards 73.30 -73.50 in the near term, however, 72.05 and 71.90 are the important support levels on the downside. We expect USDINR to trade in a range of 73.50-71.90 for March
Q) What is the strategy which one could deploy for the coming week?A) Concerns over the spread of coronavirus which might further escalate, we are anticipating Nifty to extend its correction after Friday’s fall of 400 points and to take advantage of the same at a very minimal cost, and we are suggesting a bear put ladder for 5th March weekly expiry.
This strategy consists of buying 11,100 put @ 136 and selling two out of the money puts (OTM), one at 10,900 @ 84 and the other at 10,700 @ 55. It is a net credit strategy of Rs 3 and all options expire on 5TH March 2020.
The maximum profit of Rs 203 (Rs 15,225) happens if Nifty remains near 10,700. However, since we have sold an extra put at 10,700, every point below level will cause the profit to drop right until 10,500.
Below 10,500, the losses will multiply and it is advisable to exit the strategy or in other words, maintain a stop loss of 10500. If there is a bounce-back in Nifty, then since it’s a credit strategy, our gains will be restricted to Rs 3 per lot i.e Rs 225/-
Q) Any top 3-5 breakout buy which you think could be bought for March series?A) Here is a list of stock ideas which traders could consider for the week:
It has made a new all-time high last week after breaking out from the multi-month declining trend line. We recommend to buy near Rs 150-140 levels with a stop loss of 120 and a target of 180-200 levels.
It has broken out from the multiple resistances near Rs 480 levels. We recommend to buy near 485-475 levels with a stop loss of 445 and a target of 530-550 levels.
It has bounced from the major support zone with lifetime high volumes indicating good participation by the bulls. We recommend to buy near 95-90 levels with a stop loss of 85 and a target of 115-125 levels.It has broken out from a one-year-long resistance of 670 and is sustaining above that. We recommend to buy near 680-670 levels with a stop loss of 650 and a target of 710-730 levels.
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