Nifty clings to 5750; experts fear freefall if 5700 breaks

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It was a very tough day on Dalal Street today. The brakes were slammed on yesterday's pullback as the market grappled with weaker than expected earnings from Infosys and selling pressure in the financials. The Sensex shut shop today at 19,182 - down 351 points.

The big disappointment was Infosys today as it kicked off earnings season. Its Q3 results came in lower than expected, and stock tanked 5%. Volume growth at 3% disappointed the street although the management mentioned that industry will see growth of 18-20% and return to normal next fiscal.

The Nifty started off mildly choppy and until noon it held onto the 5800 mark. It was only post that the market saw intense selling pressure and tanked 100 points to close bang at that psychological 5750 mark.

Among sectors, banks were the weakest link today. The Bank Nifty was down close to 4%, influential stocks like SBI, ICICI Bank, were down 4%. All eyes will be on that crucial inflation number tomorrow. Some other weak links included metal stocks like SAIL, Tata Steel and JSPL. Some winners today included ONGC and Cairn, holding their head above water and cement stocks. The only ray of hope was that midcap index did not sell off severely and relative outperformance and market breadth at 1: 2 on a day when the index was down 2%.

The start to the year has been shaky, to say the least, contrary to general expectations. Several factors including inflation and hardening interest rates have contributed to the downfall. What the market is now looking forward to is the results season, which will help the market gauge the impact of a lot of the macroeconomic variables on corporate earnings, which will be followed by policy response by the Reserve Bank on a lot of these variables.

Specifically on levels, the 5700 level has been a crucial level for the Nifty. Although the market has seen support twice at that level, experts believe it may not be lucky a third time round. Said Jatinder Sharma, Partner, Equity Strategists, "I think the market has been extremely volatile for the past three sessions and it has successfully tested the 5700 level twice. But I believe that it may not be third time lucky as one leg of the market i.e. the IT segment which was propping up the index for the past one and a half months is now on a weak wicket."

With yesterday's pullback having been convincingly quashed today, Technical analyst Anil Manghnani of Modern Shares & Stock Brokers explained that the Nifty's core structure has been significantly weakened, and 5700 may not mean much and could break soon. "Each time the Nifty comes back to 5700, it has weakened the market's structure. "It's consolation that the market held 5700 but more and more sectors and stocks are getting weak. You are getting less and less stocks that can take this market up. It seems like the pressure is a lot more today. If we compare the prices today to about three weeks back when the index was at the same price it is much lower. That itself tells you that there is a problem. So I am getting a little worried and I don't think 5,700 means anything now." He is also concerned that in yesterday's 300-point pullback, FIIs were net sellers, and sees considerable pain for the markets going forward.

Ambreesh Baliga of Karvy Stock Broking sees 5700 as a crucial support. A breach of 5700 would see the market falling 500-600 points, Baliga said. "I just hope that does not happen because it will clearly depend on the newsflow, which come at that point of time. But for the time being that is a very good support level. We still believe that the market would be in this range of around 5700 to 5900-5950," Baliga added.

Mitesh Thacker, Technical Analyst, miteshthacker.com said today's close above 5750 is significant. "In the declines in the month of November, we saw this level play out very nicely in this entire 50-point range of 5750 to 5695 I think has acted time and again on the intraday basis or on a closing basis acted as a good support." However, Thacker too feels that the level may be breached over the next few sessions. "All the volatility indicators have shot up which means that markets will be choppy like what we have seen for the last couple of days."