Last few sessions have been very tough for the Indian market. Global and domestic factors have pushed the Nifty to the 4,800 mark.
Anil Manghnani, Modern Shares & Stock Brokers says, ever since the Nifty broke the crucial level of 5,080, it's been on a free fall. Logically, he says, the next target is 4,530. "But honestly I will be very surprised, if it went through in this move. I had expectation earlier in the year that, somewhere closer to Diwali, we would actually revisit the lows of last year," he adds.
He expects the market to bounce back now, a pullback to maybe 5,100-5,200 and then a resumption of the downtrend.
Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: It’s been a very difficult week for the market. What kind of markers are you setting for the Nifty on the downside now?
A: Ever since the Nifty broke the crucial level of 5,080, it’s been on a free fall. We had a market earlier on in the year where every time it fell, you had enough bouncing ability, especially at the 5,200 mark. But now it seems like every time there is a mini bounce intraday, it’s clearly caught in some sort of a bear trap. The discount on the futures also suggests some heavy selling at every bounce.
Logically, the next target is 4,530. But honestly I will be very surprised, if it went through in this move. I had expectation earlier in the year that, somewhere closer to Diwali, we would actually revisit the lows of last year. So, I would be surprised if we go there right away.
Although the whole world is caught in some sort of a selling frenzy, many things are combining at major crucial levels. For example, our own Nifty between 4,800 and 4,750 has a host of supports. The dollar index has a resistance around the 81.80-81.90 mark which is not too far away. The VIX, which is closer to 25, has a lot of resistance around the 26 mark. Even the S&P has now come to the cluster of 200-day moving averages and 1,290 is the crucial support, it’s at 1304 right now. So, I think combined all these factors would suggest that not a change in trend, but just from oversold levels or in the dollar case maybe overbought levels, some sort of a pullback is expected. Even the euro at 1.26, which was the low a few months back, is a very crucial support.
I am not saying that the market should bounce, but there is a good possibility that because all these factors are sort of combining at the same point of time, you may get some sort of a relief bounce, a pullback to maybe 5,100-5,200 and then a resumption of the downtrend. The target remains 4,500, but I will be very surprised if we went through in this move. I would expect a pullback first and maybe little later and maybe a month or two later a resumption of the downtrend.
Q: How do you approach any potential downside? Do you still go with the banks, infrastructure, and real estate or are you beginning to see signs of breakdown in spaces like FMCG?
A: I think still a lot of money is moving into defensives, because with the market coming down sharply, net-net basis, we are not seeing a great FII outflow. So, I think maybe what’s being sold into the infrastructure or metals banks is probably moving into defensives. But I think defensives is in that last leg, maybe it will last another three to four months. I think sometime by the end of the year defensives will top out. You are getting the early signs on the charts that they are getting stretched out. So, they may pull up a little more or just hold onto these levels for quite sometime, till the market finds some stability.
If you just compare the Nifty movement to some of the sectoral charts, be it CNX IT or CNX Bank or even CNX Midcap, it’s quite interesting. If you take the 61.8% retracement of the Nifty from 4,530-5,630, it got over at 4,950, but that has not happened in the three indices. 5,700 was a CNX-IT 0.618. It hit that and bounced from there. 6,800 is a CNX Midcap that hasn’t even come yet. I think on the Bank Nifty it’s about 9,091, which probably will hit this morning. But those three indices are clearly outperforming the Nifty. That is something you don’t see. Atleast on the CNX Midcap you think, when the market falls, the Midcap Index should actually over-correct the Nifty. But that’s not happening. That tells me that probably last year most of the damage was done in midcap and this year the largecap is now playing catch up on the downside to what the midcap did last year. So, you could see some more sell-off in the large cap, but I think the Midcap Index might settle sometimes soon. If the market settles at let’s say 4,750 and starts to bounce then even the Bank Nifty should settle at about 9,090 and start to bounce from there.
A: I am not convinced yet on Hindalco, specifically the reason is that the market is not at 4,500, but the stock has made a new low. I believe it’s broken the December low. I am not sure.
But Tata Steel will be an interesting bet. Yes, the numbers are out today. But at Rs 396, it’s hitting the major 61.8% retracement of the entire move it did in January and February. So, I wouldn’t mind taking a punt there.
Another interesting one is Sesa Goa. I think when the index was at 5,200 or so, the stock was at Rs 189. Today, at 4,800, the stock is still at Rs 186. So, it’s not bearing too much brunt of selling in the last 300-400 points on the Nifty. That suggests that maybe it’s stabilising.