On Friday, the Nifty closed below the 5,100 level. In an interview to CNBC-TV18, Sudarshan Sukhani of s2analytics.com says, a lot of shorts could have been covered on Friday afternoon. "Don‘t short now. This is not the time to go short on the Nifty," he advises.
The Indian market is trading on a weak wicket over the last couple of sessions. It is embedded with global and domestic uncertainties.
On Friday, the Nifty closed below the 5,100 level. In an interview to CNBC-TV18, Sudarshan Sukhani of s2analytics.com says, a lot of shorts could have been covered on Friday afternoon. "Don’t short now. This is not the time to go short on the Nifty," he advises.
According to him, the Nifty will touch 5,000 level today. "If the Nifty touches 5,000, which it should, I would be taking profits," he asserts.
Below is the edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video.
Q: If we get a gap down today, which is very likely, how should a Nifty trader approach it?
A: We have been preparing ourselves for a 5,000 level. talking about myself, we are short at 5,300. I am assuming a lot of short positions were covered on Friday afternoon because there were windfall profits, 200 profit points in three-four days. Today I am only with 20% of my short positions active.
If the Nifty touches 5,000, which it should, I would be taking profits on the balance. So, this is not the time to go short on the Nifty. We have to now collect our winnings, if any and wait for the market to again consolidate and give us new directions. The ferocity with which this decline has occurred tells us that probably 5,000 is not the end of it, but it’s far better to let the markets consolidate first.
Q: Reliance Infrastructure is in your sell pack today?
A: Reliance Infrastructure is a miserable chart. It also belongs to the group which is going to distinctly under perform. It’s already doing that. It made new lows in a market where at least the Nifty is still far above 4,500. So I would assume that Reliance Infrastructure is a short sell even today because most of these stocks open with gaps. They should be sold only on minor rallies but Reliance Infra seems to be a safe sell. There was a big decline and that decline should see lot of follow-through today.
So look for a small rally and go short in it. Position traders can build positions and look for the next decline in the Nifty when this will go much lower.
Q: What about Indian Overseas Bank from banking because public sector banking has been a space which has been quite weak over the last one week?
A: Indian Overseas Bank is very weak. Earlier we were talking about the distribution patterns that were coming about and the market doesn’t oblige by immediately falling. But the distribution patterns have worked themselves out. In case of IOB, we are looking at Rs 83 as the closing price. The chances are it will open much lower and an eventual target of Rs 65. Not today but eventually.
So there is a lot of room on the downside for most of these public sector undertaking (PSU) banks. It is better to focus on the midcap banks for short selling.
Q: ITC is a sell from thefrontliners?
A: Yes. ITC has been an outperformer. One knows why, the fast moving consumer goods (FMCG) stocks are preferred when markets are in difficulty. But that seems to be over. I would assume that ITC is on the verge of a breakdown.
If the market begins to stem this decline, that is consolidate and not go up, then ITC will be an underperformer and look to a deep correction. So, ITC is a short sell. Even this morning it is relatively a safe short sell.
Q: Cipla was quite strong through last week?
A: Cipla is very strong apart from the fact that it gained for all the five days. It fell to Rs 287, completed its bear market or a deep correction then it’s been consolidating. It’s consolidated, made fairly bullish head and shoulder pattern and it’s now coming out of it, it’s not broken out.
So Cipla should be a buy, it’s been in my buy list in the last week also so it must be in our buy list. We will try to buy it today if there is a decline, a gap down and that’s a very good reason to go long in Cipla because we are getting something that’s likely to move up and we will get it today at a lower price. So Cipla is my number one pick on the long side.
Q: You have picked Mphasis to buy from IT pack?
A: Mphasis is more of a reversal trade. I am assuming that it stemmed its decline, stopped falling and chances are that maybe it will start a rally. It’s different from Cipla which is what I am saying. Cipla is already giving signs of life. In Mphasis we are anticipating that something good will come out of it because it’s no longer declining, it’s breaking some minor trend lines also.
Mphasis is avrelatively high risk trade and probably not a good idea in the morning. If the market starts showing some signs of strength, I would be looking to buy Mphasis. It’s a better among the midcap IT stocks.
Q: You have a sell on United Spirits?
A: United Spirits stopped going up when it touched Rs 750-760, which was the resistance area. I would assume that it is going to go back to Rs 450. No matter what the markets do, the stock is going to start its decline. So United Spirits is a short sell that can be taken this morning.
One doesn’t have to wait for a bounce or for rallies in the Nifty or consolidations. This stock has faced significant resistance at Rs 760 levels and has begun a decline which should take it all the way back.
Q: It looks like we will start around 5,000-5,020. If you do take profits on shorts there what is the point at which you will seek to reinitiate any kind of short positions or what is the extent to which a pullback can carry us on the Nifty?
A: I don’t see the pullbacks in this current leg exceeding 5,100. That would be very optimistic scenario. So rather than looking at the levels, if the markets remain choppy then any minor rally, even 50 points higher would be a sign to again start building up short positions. So anywhere between 5,050 and 5,100 would be an ideal case to start taking shorts.
The markets may not oblige and would drift down, continue on the lower side and if that happens then today first hour’s low is the benchmark. If the market cracks the first hour lows then it is telling us that the gap itself is not enough and we will start short positions again.
Q: How much more downside would you see on IRB Infrastructure Developers after 25% cut last week?
A: On IRB Infrastructure Developers Rs 110 would be a reasonable target. On Friday it was trading at Rs 127. I would expect it to slide by another 15%. Once the stock breaks the support levels, however good the charts may have been earlier, they are abandoned. So there is no buying here. It’s a short sell on any small minor rally and there are much more levels on the downside.
Q: VIP Industries cracked post its earnings?
A: VIP was already under lot of bear pressure. It was just going through a relief rally and it had fallen before the earnings. The trend is down. On VIP we are looking at Rs 75, maybe Rs 78. But in case of VIP, the downside could be limited at least for the time being because the stock again needs to consolidate and then decide where it wants to go. So the trade in VIP should be with some reasonable profit targets, do not expect a big move down.
Q: What is the best way to approach TCS?
A: We want to buy TCS, not necessarily today. But today, tomorrow whenever the market stabilize,TCS should again cross Rs 1,300 and start looking to make those new highs. TCS is a perfect opportunity to build a hedge, if on is short or simply to go long.
Q: You have been quite bearish on Delta Corp. Is most of the downside done at Rs 55?
A: Not necessarily. The immediate target is Rs 50-51 but that doesn’t mean the downside is done. Like in VIP there is a feeling that something may come up and support but that visibility is not there in Delta Corp. If I were short in it or want to take a short position, I would be willing to take some risks and expect more downside, not just Rs 51.
Q: Your views on Jain Irrigation?
A: Jain Irrigation has been a big disappointment. When it fell, it didn’t rally above Rs 115 and it gave the message that much more downside is coming. Jain Irrigation continues to slide. It’s unlikely to reach zero ans so we must have modest targets on downside. My targets are somewhere between Rs 70 to Rs 75 and then let the market tell us what it wants to do.
Q: What about Essar Oil?
A: Essar Oil is building some small base but I don’t see it going through a big rally. It’s a sell, in fact, if it cracks then its probably heading lower. Of all the stocks we have discussed, almost the entire scenario is sell on rallies, sell on breakdowns except for TCS.
Disclosure: I have no holdings in the stocks discussed