Sep 02, 2013 05:13 PM IST | Source: CNBC-TV18

Nifty rally to be short-lived; may fall to 5000: Atul Suri

Atul Suri feels that the current rally in the Nifty may be short lived as it is heading to levels of 5,000 in the long-run. The fundamentals suggest that there will be a sharp fall going forward, he told CNBC-TV18.

Trader Atul Suri feels that the Nifty will extend its current pullback to 5,700-5,900 levels in the near-term, but will see a sharp fall to levels of 5,000 in the long-run. "We are in for a short-term spike up and then we may have another leg down", he told CNBC-TV18.

The market has been extremely oversold and is due for a bounce back for the short-term, he told CNBC-TV18. Information Technology (IT) stocks will continue to see an uptrend and the index may revisit the highs witnessed in the year 2000. Pharma pack's performance will also be similar to that of IT, he adds.

Also read: I am positive on India: Rakesh Jhunjhunwala

Below is the edited transcript of his interview to CNBC-TV18.

Q: It has been a hectic and hellish month for you. How are things looking for the market post last week and the recovery in the last couple of days?

A: The last few weeks or months have been difficult as I belong to the camp which thought that the market will get into life time highs. That concept had to be reversed. I use the Dow theory where markets and uptrend make higher bottoms and tops.

We really went out and made a lower bottom which was at 5566 on the Nifty. Beyond that we have entered into down phase. For the short-term, the belief that I had we will get into life time highs, make new highs takes a backseat.

The signs really came from the Bank Nifty. The Bank Nifty has very well worked as a lead indicator to the Nifty.

Just as when one uses a Dow theory in the US, one uses a Dow transportation. I try to use the Bank Nifty. The index went out and created newer lows much before the Nifty did.

In fact, the Nifty was around 5900 or thereabouts when the Bank Nifty went down. What we really got into is a pace of lower lows. The more basic thing was the change in trend where I again recalibrate and redo my calculations. It sets out a target for Nifty around 5020 for me.

We went to 5100 plus but we bounced back. Barring the short-term pullback we would have another leg down and we would revisit those levels. That is my bigger picture as far as the Nifty goes.

However, what I find in the short-term is that we are extremely oversold and we are due for a sharp bounce back. We are already seeing in the last few days because what one really sees is that the sentiment is very bad – everyone you speak to, it is in all headlines in the media.

Every one is in a very bad mood in the market etc. Interestingly the equity market has not done so bad in the last one or two weeks. The last two weeks have been large range based. If one looks at it technically, they have closed at the upper end. If one looks at last week for all the poor sentiment we really didn’t have a negative week.

It is also for the week before that contrary to the general opinion, which is very bearish and where everyone is talking about going short. The markets are saying something different in the short-term and the markets are saying they don’t want to go down.

With a lot of oversold readings, I feel that in the next few days or next few weeks the next leg will actually be up. It will be very sharp again, the participation will be very low and sentiment made on one side, prices weighed on the other side, prices will prevail and we may have a pullback.

However, beyond this pullback we will have another sharp leg down which would take us to around 5000 levels but I don’t think things are doing to end or people are talking off like total catastrophe or calamity.

We may take some time, rebasing and finding a base at those levels and then have another leg up. To sum it up, that we are in for a short-term spike up and then we may have another leg down but it is not the end of the world. It is not the end of equities, it is not the end of India that is the feeling that one gets when one looks whether it is international media or one speak to domestic people.

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Q: What could be the extent of this pullback? We went to 5120 last week and we have already come up to 5520. That is 400 points of pullback from last weeks lows. How much more would you give it in September?

A: We can easily come upto 5700 to 5900. It is difficult to exactly pin-point but the charts tell me of a very-very oversold market and when one has such oversold readings combine with basic sentiments in the market one does have a surprise rallies.

The rally will go on. The moment people start getting little more confident and feeling that is when one has to be careful. In fact, right now we are in the sweetest spot where it is just a very sharp short covering rally.

As I said 5700-5900 thereabouts is possible for a trend reversal to happen. For me to say that okay we have made a higher top would be around 6093 which is around 6100 or thereabouts which again is very far away.

We could find a shelf somewhere around 5700 to 5900 based purely on the basis of a huge short covering oversold rally that is likely in the market.

Q: Who do you think the driving force will be for that? Will it be spaces that are broken down the most? Banking? Or is it still going to be the same guns firing – things like IT, a little bit of pharmaceutical, maybe Hindustan Unilever?

A: Initially one will have the short covering rally. One will find these beaten down spaces but one has to be very careful of trading them as you may get into them. But you have one bad day and they get whacked 5-7 percent. One can really burn your fingers. I do feel that the leaders will again come back.

We have been seeing how IT is doing well. The whole IT index will revisit 2000 top which again was unthinkable. But the way the stocks have been moving, Even if one looks at it globally; at Nasdaq, the world is going to be surprised by what is happening to IT. The 2000 tops in IT or index levels are going to be revisited.

FMCG has taken a big whack and most people feel that it is not going to perform but I don’t think so. There has been no major big chart damage, they have got oversold and a leg up can be seen.

Pharma has been sublime, it is still in the channel and there are some other sectors which no one speaks off. But a surprise is something like autos.

If one looks at the auto charts, there have been not major damages that have been done considering the rate sensitive etc. Auto should have taken it in the chin, but autos have rally held out and something that is not talked about or unknown or which will surprise is autos.

Metals have done that for the last 15 days or a month so one will have these pockets of unknowns that will surprise but the darlings or the leaders which is IT, FMCG, pharma will still continue to make newer highs.

One will find these entire indices at new highs even if the market just pulls back and does not have a trend reversal.

Q: What do you see happening with the rupee; more likely 70 or more rightly a sharp pullback in also looks like an oversold market?

A: When anything is at a life time high, it is difficult to call the top. I have been always looking for the top last few days. I look for some candle pattern etc on daily, weekly and they haven’t been working out because it just makes one to come back and revisit the basics at life time highs when stocks, when any asset class is in a parabolic move which is really happening to the currency space right now.

It is foolish to call for the top. So, really it is very difficult to go and set out any tops and to trade in that. One is going to get very badly hurt because overnight the rupee gaps up and down with such large amounts that one will get seriously hurt.

For me, what I am really looking for in the rupee is not the top because I do not think I will be able to get it. What is more important is when there will be a reversal and for that the rupee – as we stand right now one saw from 60 how it moved to 69 in a matter of month or so.

It moved 15 percent then came down to 66 and just under where it is right now – I see support at 63/USD for the short, medium term. If that violates that is when I really feel that some sizable reversal will happen otherwise I think it is just a case of one day down, two day down, three day up and the gap up, gap down kind of moves that they are.

At the moment it is something which one has just to watch, trying to call the top in this asset class or the rupee at the moment is going to be very difficult. It is a trade which is you have to respect it, you have to watch it.

It is the single largest driver in the short-term especially what the domestics are looking at but it is very difficult to pin-point where it is going to end.

One has to take it that I am seeing the kind of depreciation that we have seen in the last month or so in the rupee is phenomenal not just in the domestic context but even globally. In the whole emerging market space India has really taken it on the chin.

I was reading some blog over the weekend- there is just a feeling that as if it is like it is becoming a banana republic, it is going to shut down or everyone is going to exit this space but prices don’t say that.

I think things are not as bad as it looks. In the short-term the sentiment is very-very bad and I guess at this time one requires certain amount of experience, certain amount of revisit the past and just look up and see things and one realize that well everything is not lost.

I hope so and that is what I really see with the markets, with the rupee or whatever things we trade right now.

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