Nifty to test 4800, buy infra when mkt falls: Darashaw & Co

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by Regan Homavazir See what other Experts & Brokerages are saying about ICICI Bank See messages about ICICI Bank

Regan Homavazir, CMT, Associate Vice President, Technical Research, Darashaw & Co. Pvt. Ltd continue to be bearish on the market despite the recent rally. He sees crucial resistance levels playing out in the scene now, which will eventually take Nifty down to 4200, with 4500 and 4800 being key stops.

But Homavazir advises a buy on infra stocks. He says the sector has seen time and price correction and should be buy when market falls.

Below is an exclusive transcript of Regan Homavazir's interview on CNBC-TV18. Also watch the accompanying video.

Q: Since we last spoke a lot has changed in terms of price. Has your view changed on the market? Has the market turned any corners and you are not that bearish any longer?

A: What has happened in the last four weeks has been a smart rally. The market has moved from 4500 to where we stand at about closer to 5200 now. Now what has happened is majority of stocks and the market is now placed at a critical resistance. Usually one would expect very large selling to emerge at current price levels. We'd be expecting critical resistance on the Nifty around these levels and now there will be a step by step process. The Nifty will first have to test 4800 and after which will be again starting to look at 4500 and 4200. So the first test of the Nifty is expected to be at 4800 from now onwards. The Nifty at best can do a percent or two higher.

Q: You still think that the medium term downtrend is in place? This rally does not negate those technical formations?

A: No the rally has changed the picture slightly; I wouldn't say that it hasn't changed the picture at all. This rally has taken the Nifty to where it should be at critical resistances. Earlier after breaking 4700, the Nifty went down only 200 points and it's come up all the way from there to here. But we are not changing the outlook; reasons being the long term parameters still haven't changed. So the outlook to 4200 and 3800 remains intact. What has happened is it will take more time to get there than what we initially thought of. We initially thought that the first half of the year will get us to 4200 and 3800, that outlook may extend a little into the later half of the year.

Q: So that would be your call for the next series to approach the index with a shorting strategy if it does manage to get beyond 5200?

A: Absolutely yes. You should be short at these price levels on major stocks like L&T and TCS. Obviously the IT index, which we were very bearish on the last time that we spoke, hasn't done anything in this upmove. Infosys has been quite a drag, TCS has fallen quite a bit and the only stock that is holding on is Wipro which we are expecting to sell off very soon too. So IT has not participated, but banks have participated. The banks like Axis Bank and ICICI Bank had sold off quite viciously and has come back to the same price level where we used to be a month ago. We are still expecting Axis and ICICI Bank to rapidly sell off from these current price points.

On the other hand the only sector that has met its price correction that one would envisage is the infrastructure space. Right from 6300 onwards, when we started to go down on the Nifty - the infrastructure space never had any meaningful rally even when the Nifty rallied - infrastructure kept on falling. And today the infrastructure space has tested the 2008 low, or an equivalent low. So infrastructure has done its time-wise cut, its price-wise correction and the time-wise correction are now likely to get on the way. So infrastructure would be a buy when the market falls.

Q: Any specific names that come to mind there when you look at charts like L&T, IVRCL from outside the index or BHEL even?

A: JP Associates is one stock that we should be looking at. We had earlier spoken of BHEL and we said that it's at a level where investments could be considered. But obviously there is a lot of time damage that could be coming in. Other stocks like IVRCL has had a very outstanding rally of late. But let's put it like this, IVRCL last year was still Rs 200 and today it stands at Rs 50. So if you compare it year on year, IVRCL has actually not appreciated in value. But from the low it has doubled that's something that one would have had to expect considering that it has tested the equivalent of 2008 lows. Market then was around 8000 Sensex. So IVRCL has come to that price point and doubled so there is actually no big difference in the chart expect for the fact that it has completed the price correction that once we would envisage.

Q: What do you make of the banks and this rally and how is the Bank Nifty and some of the key banks looking to you technically?

A: I'd be very cautious at this price point on banks especially ICICI and Axis Bank. If you have to look at a bank for an investment, SBI has come to a long term parameter, has met most of its downside targets. We had outlined Rs 1500-1600 as a potential support zone for SBI which has come and SBI has bounced from there. So I would be looking at SBI for investments and looking to get out of ICICI and Axis. I'd be extremely cautious on the bankex.

Q: If you had to pick up a couple of stocks to be short on at these Nifty levels, aside of the ones that you have mentioned, what would those couple of stocks be?

A: GAIL would be the one to short as it looks on the chart because GAIL, inspite of this four week rally that we've had on the index, hasn't moved anywhere. So for GAIL, there is a lot of impending weakness in the chart and GAIL looks like it could drop 20% very easily. It looks like Rs 300 is the potential target. I would also say L&T has met a very critical resistance at Rs 1360. The problem with L&T is the resistance spans across till Rs 1500. So L&T would be the one to short now. Among the metal space I would say Sesa Goa , Tata Steel , Jindal Steel and JSW Steel . These four stocks are currently positioned for a sell off. Although they have had a very outstanding rally, Jindal Steel could be coming down to Rs 460 very soon. Tata Steel is again expected to test its recent low of Rs 330 at the same time Sesa Goa, which is currently positioned around a Rs 190, the actual investment buy level is placed at Rs 105. So we would expect Sesa Goa to head there in due cost. So from onwards you would be only looking at selling Sesa Goa into your portfolio.

Q: Any thoughts on Reliance, that has been through a lot of news flow but managed to claw back to the Rs 800 mark or so?

A: The last time we spoke, we said that Reliance was definitely not a sell. Reliance was a neutral stance and more a buy stance at about Rs 630. We maintain that stance, that Reliance has moved up and it hasn't actually moved up in rupee term, but it has neutralized a lot of bearishness. So there is more time damage than price damage in Reliance. I would say Reliance is one stock that you could be invested in at Rs 630 and it's a buy there. However, at that time you could have other stocks to look at too because Reliance in the larger scheme has been a massive underperformer.

Q: Some metals to wrap up with. Sesa Goa and JSW steel. How do you approach those names?

A: I would say you should be looking at it with a shorting stance.