Difficult market: What are Darashaw's top picks of the day

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Indian market is in bad water with global crisis and disappointing domestic economic growth spoiling investor sentiments. However, post RBI policy move rupee has gained strength boosting the market.

In an interview to CNBC-TV18, Regan F Homavazir, Associate VP - Technical Research, Darashaw says that Nifty has its support at 4700. He is expecting the rupee to test 54 once again.

As a stock strategy, Homavazir advises selling Tata Power closer to Rs 100 and buy HUL . He also feels that Tech Mahindra is weakest in the IT sector and it may touch Rs 420.

Here is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.

Q: If the market pulls back a bit from the 4,700 level, what is the extent of the pullback you are expecting?

A: It is very critical to mention that on every rise from 4,700, there has been tremendous selling. Every time that the Nifty has risen even to 5,100 or 5,200, it constantly comes to 4,700. This is a very bad indication for the market. It is likely that 4,700 will break this time. We will head to 4,200 first which will be the major target.

If we look at 1992-2000 and the year 2008, we have had a steep bull run and a serious decline which was about 60% in price value. After that, within two to two-and-a-half years, it went back to that peak. This is exactly what the Sensex has replicated even this time. We call it the 12-step pattern.

The seriousness of selling off from the retest of the previous peak is that the market declines to the 61%. In technical parlance, we call Fibonacci retracement. The long-term target of the Sensex would be 12,800 levels by that yardstick.

Around 4,200 on the Nifty would be a first major target and 3,800 could be the extent of the damage that we could be seeing. The level of 3,800 would be one massive second target and would be one mega buying opportunity at that price. We will be looking at 3,800 as our second major target, first being 4,200 and 4,700 is net several times.

Q: On the way up, the resistances are getting lower. First it was 5,400 and now it is 5,100. In this pullback, do you expect an even lower top to be formed?

A: If that happens, it will be a further added confirmation to this bearish outlook. Ideally, it should happen that way.

Q: Are you not telling your investors to by stocks now?

A: Not at all. Across the board, parameters are deteriorating stock-by-stock. If you start looking at the general market, even stocks which have been fairly high, their internals have started to get deteriorated very fast. It is only now awaiting price confirmation. The parameters are down. Coming to price confirmation, it will spell bearishness and some serious deterioration could be underway.

Q: The rupee had a sharp pullback today to Rs 54 to 52.20 levels. How do you see that technically?

A: We have been very vehement about our view on the rupee that it will continue to weaken right from Rs 46 onwards. It has met our target of Rs 54 levels. Till the time rupee does not break below Rs 52.13 levels, it will not strengthen. To meaningfully strengthen, it will have to be breaking Rs 52.13 levels, only then can it be reassessed or else the picture is that rupee will further continue to weaken. Around Rs 54 levels will be retested very soon again.

Q: What do you see for the banks? When you look at the Bank Nifty or any of the larger bank charts, what's your sense?

A: The Bankex has been one sector that has brought the market down in the last pullback that the Nifty had. As soon as the Nifty rallied from 4,700 to 5,100, stocks like SBI, ICICI Bank and Axis Bank were very badly bashed out. As far as Axis Bank is concerned, if Axis Bank breaks below Rs 940 and consistently trade below it, the target could be as low as Rs 570 levels. It could dip below Rs 600 momentarily and then pull off viciously. This is the sort of target Axis Bank would have. At the same time, the Nifty would have to break 4,700 levels and much more. The internals have deteriorated quite significantly even in ICICI Bank. Even in a stock like ICICI Bank, we would have targets below Rs 600.

Q: Titan has corrected quite a bit these last few days. Do you think the worst is over?

A: No. The worst is going to come in Titan . Titan has had a very steep up run. After the steep up run, it has gone sideways basically for multi months. Now, it's breaking below a very critical range. The range was about Rs 190. It started to trade below that very significantly and is been trading for a couple of weeks. The idea is to liquidate Titan because it could head as low as Rs 120 or Rs 128.

Q: Stocks from the IT sector have done well of late because of the rupee, but you are not very bullish on prospects of Wipro . Why is that so?

A: We are not bullish on Wipro. The IT index has hit some sort of very critical resistance. At resistance, we would expect supply to come in. Wipro is one stock that we would not be very bullish about, but it has been outperformer. Similarly, Infosys has been an outperformer, but these stocks are now likely to weaken rather than gain any strength from here onwards. Important stock to note would be Tech Mahindra. Tech Mahindra is one stock that has gone pretty much sideways for the last two years and has broken down. The target could be as low as Rs 450 on Tech Mahindra. It looks like the weakest stock among the A-group space.

Q: What about Tata Power, which has become quite active this last one week?

A: Very significant developments have taken place in Tata Power. It has broken some multi-year trend lines all across the board. We would say reduce Tata Power on every rally because the initial target could be Rs 65. Around Rs 100, if you can reduce, it would be very nice.

Q: You have got a relative call between ITC and HUL?

A: Yes. HUL is one stock that should be among your top five holdings in your portfolio because we have been constantly harping on HUL right from Rs 280 onwards. I have been always saying that buy HUL, reason being that this stock has changed character. The last 10 years of underperformance is now trying to get into the outperformance mode. ITC has already done its run. So, upsides are very limited as far as ITC is concerned. HUL should be one of the top five holdings for any mutual fund or portfolio.

Q: As we speak the rupee is slipping. It had a very sharp pullback to Rs 52.20 levels sometime back and now is back down to Rs 52.55 levels. A 30 paise swing has happened from that level of Rs 52.20 levels. Has it hit the resistance there?

A: No, Rs 52.13 is the support for the rupee. Till the time that support holds, the rupee will continue to weaken. This is only a pullback in the larger scheme of things, which is not very indicative of the rupee going to strengthen any fast. One needs to assess the rupee below 52.13 levels. Above this, it will weaken even further.