S Hariharan of Quant Broking expects a retest of recent lows. “Around 2,100-2,200 seems to be the top of the 16-year channel that has been forming since 1992. From a technical standpoint, we should be retesting those lows and maybe that support holds for a serious period of time.”

He feels the market will bottom out in about six-nine months before economic news turns bad. “We have not even started that cycle yet."

Q: What are you gauging right now from the market? Are you expecting to see much lower levels even as a trading strategy what would you put out?

A: Yes, we are expecting a gradual drip down and we do expect that the recent lows are going to be retested. Around 2,100-2,200 seems to be the top of the 16 year channel that has been forming since 1992. So, yes, from a technical standpoint, we should be retesting those lows and maybe that support holds for a serious period of time.

Even from here there are sufficient stocks that give you scope for shorting on the basis of an expectation of downgrade in earnings estimates. So yes there is still scope shorting single stocks from here.

Q: What would be that set of stocks that you are talking about which still can offer downsides even if the Nifty does not offer significant downside?

A: From the sector’s standpoint, energy has been leading this particular fall. So Reliance, ONGC (Oil & Natural Gas Corporation) and Cairn India continue to look vulnerable from here.

Even from a standpoint of derivatives positions in these stocks, it is not overly heavy on the short side. So, yes, energy would be among the top shots and from single stocks Larsen & Toubro (L&T), Satyam, DLF appear to be good shots as well.

That is from an earnings downgrade point of view. For example, L&T - about Rs 55 of earnings priced in and downside surprises will stop making this 13-14 times of valuation look cheap.

Q: What kind of downside targets would you have if you opened up shorts today in Reliance, in L&T or in ONGC?

A: For Reliance our expectation is that it could go all the way down to about Rs 800-900 and on ONGC the expectation is about Rs 550-600 and L&T again about Rs 500 or so.

Q: For the market itself at what point would you play for a bounce and how much do you think you might get from it?

A: The thing is from a macro standpoint, you have not had complete breakdown of news flow in the sense that negative news flow has not started coming in, even earnings downgrades and cycle where you start seeing quarterly losses that has not happened yet. So the market will bottom out about six-nine months before economic news turns bad, but we have not even started that cycle yet.

So would you want to play for a bounce, I am not too sure. Small bounces might come in the way but you just keep getting whipsawed.

I would prefer to stick with single stocks for the time being, shorting right now. And closer to about 2,100-2,200 on Nifty maybe you do not want to be short of stocks that have high levels of cash and cash flows going through over the next few years.

So the Bhartis and the Reliances of the world -when the Nifty is around 2,100-2,200- you will not want to be short of.

If you are a portfolio manager, who has a restriction on how much cash you can hold in the portfolio, then I do not see why you would be selling out your Reliance holdings, if Reliance were between Rs 800-900. But playing for a bounce you are investing to make money, I do not believe that it is going to be a strategy that too many people are going to adopt in the coming few months.