Nifty may see 4500; metals to fare better than index: CIMB

The Nifty opened slightly higher at 5,428.75 from yesterday's close at 5,408.45. The exchange saw an intraday high of 5,449.25. But Sushil Kedia, director - quantitative strategy, CIMB, says Nifty may fall to as low as 4,500 but it will not be in a straight line. The Nifty fell from 6100 odd to 5200 without any major rallies in between, he adds.

Also Read: Nifty may trade between 5370-5480: ICICIdirect.com
Though he is quick to add, there are ways in which markets adapt and for the long run this may not mean a permanent gloom and doom and just based on the rupee scenario if some people are talking about a crash back to 2008 levels that is an overstretched idea. He feels the average cost of a dollar to rupee should be around 60 over the next 5-8 years.
On banking stocks, he feels that is the most oversold sector and a relief rally has already begun. He says Bank Nifty will see next resistance at about 10100, which can also be taken out and then the next resistance will be seen at around 10900. But it may finally tumble back closer to 8000.
On metal stocks, he says though they have joined the broader market fall, after this rally plays out metal companies will not fall as much as the Nifty. Below is the verbatim transcript of Sushil Kedia's interview on CNBC-TV18 Q: How would you play the Nifty now? Was that a false upswing that we saw or do you think you will still climb onto it?
A: In the medium-term Nifty has definitely opened gates to decline to as low as 4500, it will not happen in a straight line and within which the current leg of the fall is already looking quite overstretched. We have fallen from 6100 odd down to 5200 without any substantial rallies in between. So in that sense we are in the oversold zone and the kind of volatility we have witnessed in recent days, it is a trickier market to be a very short-term trader, but for those who will do that 5500 is one resistance which if cleared we can go to 5750, but when we combine this with the medium-term perspective my 95 percent probable range, a 2 standard deviation confidence range for Nifty is 4500-5750 and my 99 percent confidence range corresponding to 3 standard deviations is 4500-5900.
So for very short-term there can be some rebounds up still and when we combine this with something far more intriguing, far more worrying that is happening on the INR-USD and if we can quickly jump onto that discussion, beginning today there is another small dip coming in INR-USD, some relief may come with this going down to about 62, but not lower, eventually to fly back to again towards 67-68 that is what the base structure is right now.
What is far more important from a very longer term perspective is that the earlier view used to be that 40-52 will be one last leg of weakness and will in any case not go past 57-58, we have done all that. Now the emergent pattern over the last one year creates layers and layers of support from 57-56-54-52 and there are ways of analysis which I will right now just briefly mention the conclusion that over the next 4-5 years we are unlikely to go back to less than 54-55. So the average cost of a dollar to rupee should be around 60 over the next 5-8 years, the kind of thing we witnessed that around 45-46 used to be the average during the prior 10 years.
One more important thing. The dollar-rupee used to be stable at around 32 and a regime change came and we jumped onto an average range of 45 for 10 years, such kind of a major structural change in the range for the next 5-10 years coming in this way does not mean a permanent bear market in equities or a permanent gloom for the Indian economy. We have keeping on adapting to this kind of ongoing depreciation in the last 60-70 years and correlations work very differently on a very short-term, medium-term and long-term with the same assets, so there is concurrent correlation on a week-to-week movement.
So there are no lead/lag correlations of any significance identified and one very important thing, in this rising asset prices scenario since 2009 there is actually statistical evidence for noticing that weeks in which INR-USD actually appreciates almost all the equity sectors in India barring IT, the positive returns on equity sectors is far more than the negative returns that happens in weeks when INR is depreciating. So there are ways in which markets adapt and for the long run this may not mean really that there is going to be a permanent gloom and doom and just based on this INR scenario if some people are talking about a crash back to 2008 levels that is an overstretched idea. Q: Any views on Bank Nifty? How much downside? Is there any immediate relief at all for that set?
A: That is the most oversold sector and definitely a relief rally has begun in that. The next area of resistance is about 10100. I would like to stay humble for now, but there are good odds that 10100 can be taken out and will then see the next resistance at around 10900. That is the most I am looking for in the current rally that has already begun on the Bank Nifty, to play out and finally we may again tumble back closer to 8000, but for now I do not think the wind is supporting short sellers or sellers in banks. They are deeply oversold. Q: We have seen a bit of a bounce back in metal stocks. Tata Steel in particular crossed some moving average resistances as well. Is there any of those that you would bung in for a trade for the medium-term?
A: There is already a huge move that has happened in Tata Steel from Rs 195 odd to Rs 276. I would say any fresh buying in that stock is adventurous until it goes past Rs 292. That is looking difficult, so perhaps distribution may begin in this and going forward again if it dips I do not see there is any major significant decline below the prior lows.
So in the very long run Tata Steel has already come in that zone where we are talking of 4-5 years time perspective that going forward Tata Steel has already begun its outperformance cycle on the Nifty. What I mean to say is metal stocks even if they have joined the broader market fall after this rally plays out they are not going to fall as much as Nifty will fall. There are other stocks that are going to fall more than Nifty. For full interview, watch video.. Disclaimer: The above views are the personal analysis of Sushil Kedia, President ATMA and do not  reflect any opinion of ATMA
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