The week gone by ended with a huge red candle erasing gains from the start of the week. This is seen as a correction, as the short term trend for the market has turned down.
Market made an intermediate top where Nifty faces resistance at 11,380 on the upside, which if broken above could lead to bullish momentum but the probability of a correction is much higher, Umesh Mehta, Head of Research, Samco Group, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:
Q) Nifty closed mildly in the red. What fuelled the price action on D-Street? Although the index moved in a range as gains were capped around 11350 levels?
A) The market opened on a positive note at the start of the week but did not have any clear headway. Indices saw a sharp selloff led by financials in the second half on Friday on signs of escalating US-China tensions.
Profit booking was witnessed as investors turned cautious, although this could just be a correction in the recent rally. In addition to this, stocks in the F&O ban category too have increased which advocates danger going ahead.
Traders should remain cautious as odds of a further correction is high. Investors should also not participate during such euphoric times triggered by liquidity.
Q) How is the coming week likely to pan out for investors? What does the technical suggest? Important levels which traders should watch out for?
A) The week gone by ended with a huge red candle erasing gains from the start of the week. This is seen as a correction, as the short term trend for the market has turned down.
The Nifty 50 is in the overbought zone and a retest of 10,900 cannot be ruled out. Markets have made an intermediate top where Nifty faces resistance at 11,380 on the upside, which if broken above could lead to bullish momentum but the probability of a correction is much higher.
Q) Sectorally, capital goods, industrial, and auto were among the top gainers in the week gone by. What is driving the rally in these themes?A) Rally in capital goods, industrial and autos was driven by hopes of a stimulus to be announced by the government ahead of Independence Day as these sectors were in dire need for a booster.
Further unlocking of the country and expectations of a pick-up in demand from Q2 numbers further onwards fuelled the rally in these stocks.
Currently, markets are undergoing a sectoral rotation process wherein money has been riding in search of underperforming and undervalued sectors and stocks at the same time defensive sectors will witness pressure.
Q) Mid & Smallcaps outperform on most of the choppy days. Does it look like investors are chasing growth in a volatile market?A) As we all know, liquidity is driving up markets, pumped by FIIs rather than retail investors. Retail investors have been net sellers in equity mutual funds and are in fact moving towards debt schemes leading to a tug of war situation.
Foreign investors are positive on the India story for a long term horizon and retail investors are moving towards broader markets, which were undervalued, rather than rushing towards the already bloated large caps.
This is leading to the outperformance in mid & small caps compared to Nifty50 by 2-2.5%. Investors should ideally wait for a decent correction before buying and at the same time traders should have a stock specific approach going ahead and not get into volatile overbought stocks just to make a quick buck. The odds are not in favour of bulls in the near term.
Q) Please give the top 3-5 trading ideas with a time horizon of 3-4 weeks? Mention Target and stop loss.A) We remain bullish on the NBFC sector as in the recent MPC meet the RBI allowed banks to restructure its retail loans and their view on financing conditions for the sector has also changed to being stabilized in the wake of target policy measures.
Realty and infrastructure sectors may also witness buying as money has been searching for underperforming sectors in recent times.
However, investors are advised to keep a stock-specific approach and not rush into volatile stocks. Profit booking should be in the minds of Investors during such euphoric times.
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