Downside target for Nifty at 5250 if 5325 broken: Manghnani

According to Manghnani, the banking index which has got 25% weightage and has led every rally is now underperforming the market by about 5-6%. So, Bankex should rally for Nifty to hold at current levels.

"It is interesting that PSU banks broke down mid this month, but in the last 3-4 sessions the way some of the banks like Axis , ICICI , Yes Bank have fallen; it is a cause for concern because this 10,059 is around the lows of last month when the index was 5,032," he elaborated. 

He cautions that it will be difficult for Nifty to sustain current levels if it relies only on defensives like pharma and FMCG.

Below is the edited transcript of Manghnani’s interview with CNBC-TV18

Q: Any signs you are getting that the uptrend is getting aborted on the Nifty and we are setting on course of correction?

A: There are three very important points here. First if you look at the broader market is disappointing. We have a series from July where we closed and we are still up 300 points on the Nifty for August. Here we are talking about stocks hitting 52 week lows, in many cases 3 year lows and even in some cases life time lows. So, that is really weird where index is moving quite nicely, but stocks are collapsing.

Secondly, on the Nifty itself recently I have seen this across stocks that you are getting trend line breakouts even Relative Strength Index (RSI) breakouts, but you are not getting any follow-up in terms of price or volumes. Even the Nifty, which broke out at 5370 above a falling trend line is now back below that trend line at 5350.

It is a falling trend line. So that level keeps getting lower. But disappointing is that after a breakout even on the index, we didn’t see follow up either in volume or price and now it has broken down.

Last and the most important point is that in the last two years you had ITC, Hindustan Unilever and TCS rally with every market rally, but the main sector that has rallied has been banking. Banking has led every rally in the last 18-20 months.

It is interesting that PSU banks broke down mid this month, but in the last 3-4 sessions the way some of the banks like Axis, ICICI, Yes Bank have fallen; it is a cause for concern because this 10,059 is around the lows of last month when the index was 5032.

So at 300 points higher, Bankex which has got 25% weightage and has led every rally is underperforming the market by now about 5-6% is a major concern for me. If the Bankex does not start to rally, then it is going to be difficult for the Nifty to alone sustain just on defensives like pharma and FMCG.

Q: Do you believe that the support for this market could restrict itself to 5,200 or do you think we could get much lower?

A: Early days yet. For today 5,325 is the 20 day average, it has bounced off that yesterday. So we will give it a chance to see if it can hold 5,325. But, if it breaks that level then the first immediate downside target will be around 50 day average of 5,250.

Q: The sector that got hammered yesterday was metals. Are you bearish on SAIL today?

A: It is basically to convince somebody like you sell weakness even if it is at a 52 week low or a 2-3 month low and buy strength that is a life high. Unfortunately, that is what the market is doing. You can't fight the screen. TCS continues to rally even at life highs or a HUL. I am using the same strategy.

I said earlier in the month that a Jindal at Rs 400 was headed to Rs 360. I am not surprised that has happened. SAIL also is breaking down on the charts, so Rs 88 which is a 50 day average is going to be a major problem for that stock to cross now. The target a few months back was Rs 73, so believe it is headed there now.

Q: What do you see on the charts of some of these infrastructure names like JP Associates or GMR now?

A: If you had asked me this question at the end of February after the fantastic rally we had from 4500 to 5600 and in that rally, the infrastructure did perform after many years. If you had asked me the same question I would have said even if the market went back to 4500, may be the infrastructure stocks would just retest their lows or make a higher bottom.

But unfortunately today I would be proven wrong.The way some of these stocks are falling off, it is worrying that if the index were to even correct to 52-5100, these stocks will just get hammered out of shape. So may be not so much a JP Associates , but I am still worried about stocks like Lanco , GMR , Suzlon and GVK .