Anil Manghnani of Modern Shares & Stock Brokers tells CNBC-TV18 that the market will stage a pullback rally before crashing to 4500 levels by Diwali this year. “The damage in stocks does tell you that maybe down the road 4500 should come,” he said.
For the medium-term, however, Manghnani is playing for a pullback to 5000-5100 levels. His view is that the rupee will start to recover a little, which will trigger a rally in the stock market. “My belief is that the damage on the rupee has been done, at least for the short-term. So I think if the rupee does pullback to 53.5-54 levels, that should allow the market to inch back up,” he explained.
He adds that the Nifty’s resistance to fall below 4750-4800 is another indicator that upsides are available.
Below is an edited transcript of his interview with Sonia Shenoy and Mitali Mukherjee. Also watch the accompanying video.
Q: How would you approach the index today?
A: Although the market has been weak and we did go and make a new trading low on Monday, the market pulled back by the end of the day and that was a positive sign. Yes the FII figures still remain quite poor, but now you have two sides of the market.
You have one where the Nifty keeps getting protected at 4750-4800, but on the other hand you have the breadth where many of the smaller names or midcaps names have gone and made either 52-week lows or life lows or broken what prices they were at when the index made a trading low in December.
So I think maybe the breadth is poor, but the Nifty is being protected. So if you are a Nifty only trader, I think that’s a good sign. The first target to watch out for in this pullback would be about 4925.
Q: What is the market is doing in this period? Is it looking like relative resilience or is it trying to mark time at a particular level and not crash back to that 4500 zone? Or do you think that crash is coming, but it’s going to be a slow crumble down?
A: I think probably what you said last. I think it should come actually, but I for one had believed that it would happen maybe later in the year closer to Diwali. So I am a little surprised that it may slash in June because the fall has been quite severe. I expected a more stable May-June and then a collapse towards the second half. So I think 4500 is possible later in the year, but I probably would hope for an up move closer to 5000-5100 first.
My belief is that the damage on the rupee has been done, at least for the short-term. It needs to pull back to about 54.30, maybe even 53.5 a dollar and that would help the market. Let’s be honest, it’s been clearly a rupee dominated game and the market has crashed because of the collapse in the rupee. So I think if the rupee does pullback to 53.5-54 levels, that should allow the market to inch back up and then I think the next fall would start.
The damage in stocks does tell you that maybe down the road 4500 should come. But for now, I don’t mind playing for a little upside to 5000-5100 just because the market is showing that the Nifty wants to hold 4750-4800 in the immediate term.
Q: BHEL is in a very interesting place. Fundamentally it’s been discarded quite a bit, but technically a lot of experts are recommending it. You see more upside on that particular counter?
A: Yes I see a trading pullback for couple of reasons. There is a major moving average around the Rs 200 mark, so there’s no surprise its taken support there. I think it spent a lot of time between Rs 200-210, which tells me that maybe the overall structure is still weak, but at least a short-term move back to Rs 229-230 levels is on the cards.
So I think because it’s oversold and because it’s consolidated from a shorter timeframe, a pullback definitely on the cards.
Q: Aside from what’s happening on core banking names, would you start playing long trades on some of these NBFCs because they are the ones that corrected more sharply?
A: Yes, but the problem is that REC and PFC keep going and making new lows in every fall and that doesn’t bode well for the stock. They may see a bounce because they are high-beta names, but I would probably go for an IDFC.
Every time the market goes to 4800 or lower, IDFC doesn’t go back to its lows of Rs 110. So it suggests to me that maybe a move back to Rs 135 is on the cards if the market supports. So maybe not REC PFC, but IDFC definitely looks pretty good on the charts.
A: Sometimes when you hit panic, like when we broke 4800, I think you got to balance your books at some point. People might have come to the situation where so many stocks have been damaged that you got to book profits and that’s what typically happens on the names that have been going one way in a market that has been moving south.
I think for Jubilant, Rs 1,145 was the key support. It was the 50 day moving average, so no surprise it’s held that. But there is a good chance that because of the sharp fall it might go up, make a lower top and then again come down. So I think short-term maybe little selling pressure still left on the bounce.
Titan is the one that worries me. Bata and Jubilant kept on making new highs, but Titan would get sort of congested in the Rs 240-250 range. So now it looks like a lot of distribution has taken place out there. I think that’s going to be the first one to crack on any pullback and I think Rs 196-197 is the immediate trading support for that.
A: I think Wockhardt’s a tough one. The stock has been on a tear away since Rs 250. Very difficult to takeout targets, but at least the short-term looks a little stretched. If you are lucky to have held it on for so long, just ride the wave. Tough to buy at this level, the stock has really taken off.
I think Exide is an interesting one, but this one post the numbers, or anytime has had sharp up and down movements. For now I don’t have a technical target, but I would still say probably a sell once it rallies back to the Rs 135-140 range. It’s still not clearly out of the woods, so use the bounce first to get out.
Q: Reliance Infra is a buy in your books. What kind of targets are you looking at?
A: I guess I’m trying to play some sort of a technical oversold bounce. Most of these names have been bruised and battered, but I think just a technical bounce, maybe Rs 477 an upside target with a tight stop at Rs 437.
There is going to be risk associated with high-beta names right now, but I guess that’s where money is to be made if there is a technical bounce. So I guess the risk-reward ratio would be a Rs 13 stop and a Rs 27 upside.
Q: What’s your sense of how this month may shape up for global markets? Some of your technical peers suggest that perhaps this is the bounce to buy into and it’s going to see a switch in terms of performance where markets such as us may start outperforming in the near-term versus what’s happened on the Dow and the S&P till now. Would you concur with that?
A: It’s a tough one. I don’t want to sit on the sidelines, but I think it’s become a day to day market. Like you said earlier, first we had our own problems with the rupee and policy paralysis, then everybody started blaming the euro problem and now we have got a jolt from the US with the weak jobs report. So I think it’s just sort of a new story everday, with so many events, so how do you trade each event?
My gut feeling is still an up move first before the next fall. India has been falling for two-three months now and most of the global markets have just had their first major collapse in the last two weeks, especially in the Dow and the S&P. But having fallen so much, probably it would take a few days for them to settle down and then a bounce up.
I think even the euro at about 1.2270-1.23 had a support, so that might inch back to 1.27-1.28. That would all slowly gradually help the markets. I am surprised the way crude collapsed because I expect it to have held USD 88. But it’s gone all the way to USD 81, which is the 200 day moving average, so that might get some support and bounce just like gold did at its 200 day average. So all that normally works in favor of equities where the dollar starts to come up and you have commodities and equities rally.
So there is a possibility of that happening in the second half of June which should assist markets. Would it be a game changer or a trend changer? I think for now it’s too early to call that. I just would play it as a technical relief rally since most of the markets, commodities, currencies all are oversold.