Mkt still in corrective mode; Nifty to test 5125: Manghnani

In an interview to CNBC-TV18, he says that the Nifty may move lower to test the levels around 5125-5150. However, because the market is not giving any sharp falls, he believes even two days of good movements will help negate the losses.

“I believe 5280-5305 range would be the key take out. Once we take that out then we would negate this downward trend, just a corrective mode,” he said.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee.

Q: How is it looking for the rest of the week for the market? How have you read the performance so far for the index?

A: Just saw that Sharad Pawar and Praful Patel are sending their resignation letters, so that should make for some interesting trading this morning. But purely technically, I still think we are in that corrective mode where the market is not giving you that sharp fall which helps. When you get these shallow falls you don’t get panic selling, and then all you need is 1-2 days of good movements to negate the entire fall.

I still think 5125-5150 range should be tested at some point, but if we are to negate this downward move, it I still believe 5280-5305 range would be the key take out. Once we take that out then we would negate this downward trend, just a corrective mode. The reason I say 5305 is because last week the market gapped down close was 5305 or so. So till that gap doesn’t get filled up you remain in that corrective mode where the first real test would come at 5150-5125.

Q: How do you trade the infrastructure complex now? Yesterday stocks like BHEL , GMR , all those names looked quite strong.

A: I think you look at names that are already back to where they were at 5350. Obviously they would be the strong ones because it suggests that still buying is happening at lower levels and they have been able to absorb all the small selling pressure that it has seen over the last week.

For BHEL , around Rs 236 was last week’s high and that bodes well for the stock. Probably with a stop loss of Rs 230 now you can look at a target of Rs 245. But another one you can add outside that infrastructure pack is ICICI Bank . That’s an interesting one because that also took out last week’s high in a market which is still about 100 points from that 5348 range that we touched.

So you look for those names that are quoting at 2-3 weeks high because that means they are suggesting enough strength still left in the stock.

Q: Any trends on some of these PSU banks because they are all down between 6-8% over the course of the week?

A: Yes I think that’s the worry because although the bank Nifty is trying its best to break out, it hasn’t successfully done it yet on a weekly basis. Intra week, yes it keeps trading above that 10690 and then comes back below it. But the worry is it’s only being led by the private banks, namely HDFC Bank and even ICICI .

But you have to be worried about the way some of these stocks are collapsing, especially Bank of Baroda . If it starts to break Rs 690 then it’s probably headed to Rs 675. But I still believe for the Bank Nifty to breakout you need participation on the PSUs also. So yes you would be looking at SBI , which hasn’t really cracked yet. But I can't see the market or the Bank Nifty running away without the support of the PSU Banks.

Q: You have got a strategy on Den today, how are you trading it?

A: It is an investment call. The stock after a long time has been in a nice uptrend but now given a clear breakout. So it is not your trading stock; when the stock really doesn’t move there is no volume. But on the day that it does move you get some good volumes.

I think you buy the dip now, may be Rs 113-102 range. But you could play for a bigger move, so that’s why I am giving a target all the way up to Rs 143. So more an investment call rather than a trade idea.

Q: There was some mild disappointment on Dr Reddy’s numbers, but technically too you think it is looking weak?

A: Yes Rs 1705 was a major 61.8 fibonacci retracement. So I think even after the sudden selloff we saw yesterday, there should be some more follow through. So may be if you got a pull back Rs 1680 range again you start to short Rs 1710 would be a stop loss. But the stock would head back first, Rs 1645 but majorly more towards Rs 1625.

Q: How do you approach the auto pack now with the kind of underperformance we have seen?

A: Maruti for obvious reasons becomes the first one to look at. I would have said take a punt on the stock at Rs 1090-1080, but what worries me is that you haven’t seen these kinds of volumes in 7-8 years in Maruti. On a weekly basis it doesn’t do as much volume as it did yesterday’s fall. So that worries me that so much dumping of stock has happened yesterday that it may take some time for the stock to recover.

The other one is Bajaj Auto . It hit a very important level at Rs 1425 and bounced couple of days back after the numbers. But it becomes a sell closer to Rs 1600 and now Rs 1425 becomes a long term support. Any break below Rs 1425 opens up a downside of Rs 1200.

I think the only one may be showing some resilience is Mahindra & Mahindra . So may be that might outperform in the sense that it won't fall that sharply. But the upside may be capped for the time being.