Market has discounted BJP's majority in Gujarat; 4 stocks to buy on declines

The market has discounted the majority with which BJP is likely to win in Gujarat and a better-than-expected outcome may lead to a breakout in the Nifty, Jay Purohit -Technical & Derivatives Analyst, Centrum Broking Limited, said in an exclusive interview with Moneycontrol’s Kshitij Anand.

Q) How is market likely to pan out next week amid outcome of crucial Assembly elections data?

A) The week gone by was nothing less than a roller-coaster ride for investors as the Nifty moved sharply in both the directions on the back of global as well as domestic cues.

The volatility or the India VIX increased drastically and crossed its resistance of 15.50 for the first time after January 31. However, after a volatile move, Bulls have an upper hand as the Nifty ended the week with a gain of two third of a percent over its previous week’s close.

The index had a gap-up opening on Friday after the exit polls of Gujarat Assembly Election, which showed a clear majority to BJP; but, follow-up buying was clearly missing.

On the derivative front too, we didn't witness the formation of fresh long positions in the recent up move in both Nifty and the Bank Nifty.

Also, decent amount of shorts, formed in the first week of December series, are still intact in the system. Foreign investors (FIIs) too unwound good amount of their positions in index futures on Friday, ahead of the result of Gujarat Assembly Elections.

Technically, the Nifty is hovering around its resistance of ‘Upward Slopping Trendline’ on the daily chart, which also coincides with the previous swing high of 10,410.

As of now, the market has discounted the majority of BJP in Gujarat and better than expected outcome may lead to a breakout in the Nifty.

In the case, we may see a resumption in the broader uptrend and the index may rally towards 10,600 – 10,650 levels in coming days.

While, if the election result remains in line with the exit polls then Nifty may continue to move within the range of 10,000 – 10,400 for remaining part of the December series.

Thus, 10,410 will be a trend deciding level for us and we would be observant of market move round that zone.

Q) How is market looking at the monthly and weekly charts?

A) Despite the corrective move from the last few weeks, we are not witnessing any damage on both weekly as well as a monthly chart of Nifty. After the formation of a ‘Hammer’ candle in the penultimate week, the index ended on a positive note in the week gone by, which is a positive sign for the market.

The relative strength index or ‘RSI’ oscillator is rebounding from its strong support of 55 levels on the weekly chart. While, it is moving well in the bullish territory on the monthly chart, indicating strength in the index.

As long as Nifty sustains above 9,950 – 10,000 levels, the larger degree chart will remain positive and the index may continue to make higher highs.

Q) What should be the strategy of investors?

A) Till the time, Nifty sustains above 10,000 mark, buy on dips would be a prudent strategy. Thus, we are advising our clients to use this decline to initiate fresh longs with a proper exit strategy.

However, considering the high volatility and the event, short-term traders are advised to remain light on positions and be vigilant on market move in first half of the Monday’s session. If Nifty sustains 10,410 levels, then long positions can be taken with a stop loss of 10,270.

Q) Any stocks which are looking attractive?

A) The Nifty is moving in a consolidation phase from the last few weeks; but, we are witnessing decent price action in many large-cap as well as mid-cap names.

Thus, we would be focusing more on stock specific moves as they will fetch better returns. At the current juncture, heavyweight stocks like M&M, Stride Shasun, Infosys, and SBI are looking attractive for fresh long positions.