Expect Bank Nifty to pullback; buy SBI for now: Darashaw

The Nifty has been on a correcting spree in the past few days and is down to 5700 after the RBI kept policy rate unchanged on Tuesday.

In an interview to CNBC-TV18, Regan Homavazir, analyst, Darashaw says one should not sell in panic and expects the Nifty to hold the 5650 level.

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Homavazir adds that Bank Nifty will see a meaningful pullback. Additionally, he says that State Bank of India (SBI) is a stock to buy as he expects it to hold the Rs 1600 level. Below is the edited transcript of Homavazir's interview to CNBC-TV18. Q: Is it looking like we are going back to 5500 and do you think it will hold?
A: Don’t panic on the Nifty because the last two weeks on the market have seen serious selloff, volumes have been very large. Yes, the Nifty is oversold at this current juncture. So, if one looks at the short-term trends, the intermediate trends, they are all oversold.
This suggests that there could be a bounce. The Nifty actually had support at 5700 up to 5650. That is what we expect it to hold. The Nifty is actually very oversold currently to really talk about continued selling. One should avoid any panic selling at this point. Q: Would you do the same with the Bank Nifty, it has just broken 10000 this morning?
A: The Bank Nifty major level was at 11000 which it has decisively broken, the charts have deteriorated on the longer-term which is a fact. However, the fact is also that this sort of breakdown usually results in a very meaningful pullback. So, let’s put it in perspective.
If ICICI Bank has gone below Rs 1000 and it is currently below Rs 900, we are expecting a pullback back to Rs 1000. Even HDFC Bank, which most people generally don't sell-off, we are expecting them to hold at the current price points. Interestingly, State Bank of India (SBI) has been one stock which has not fallen as much as the other PSUs. We are expecting it to hold here. Rs 1600 seems to be the worst for SBI and we are actually recommending a buy at the current juncture as well.

Q: The problem in the correction this time around is not just what has happened with the weaker sectors like banks have been but what has happened with leadership sectors. The FMCG index is down about 2 percent this morning and Hindustan Unilever (HUL) and ITC have been correcting. Oil and Natural Gas Corporation (ONGC) and Reliance Industries which have both been relative supports for the market have also been struggling. What do you see on those charts and does that make the situation a bit more dicey?
A: The situation certainly is dicier than it was before. As far as the FMCG sector is concerned, yes HUL and ITC have also had a sell-off but look at the spectacular moves that it had before, this is an indication that a short-term correction is in picture for FMCG.
We are not very worried on the FMCG stocks. On the contrary, we would advise people to buy it on declines. So, if HUL was to be anywhere between Rs 570-550 they are strong candidates to be bought into.
As far as ITC is concerned we are not very comfortable with ITC but ITC could come back to Rs 330 where it becomes a buy again. As far as Reliance and ONGC is concerned, yes ONGC breaking down below Rs 300 is very worrying. However, where is the extent of damage for ONGC? We don't have to expect it to go below Rs 250. While it comes to Rs 250 do we want to buy it? The answer is yes. As far as Reliance is concerned the same logic would hold true that the worst case scenario for Reliance currently poses at Rs 800.

Disclosures: Safe to assume that the stocks discussed have been recommended to clients.