Darashaw says 6138 key for Nifty; banks at selling point

Regan Homavazir, Associate VP-Technical Research, Darashaw feels the Nifty will get into a "very bullish state" if it decisively moves past 6138 and sustains it on a quarterly basis.

The S&P BSE Sensex surged over 380 points in mid-morning trade on Wednesday to regain its crucial level of 20,000, led by rally in rate sensitive stocks. The Nifty rallied 100 points, or 1.7 percent to post its best percentage gain since April 16. Homavazir, who has a target of 7,500 for the Nifty, believes the NSE benchmark needs to sustain above 5850 as a rising stop level. "In 2007, when we fell from 6138 quarterly close, we fell viciously by about 63-64 percent. Later on we came back to the same price point and fell another 27 percent. Recently, we came again there and fell only 10 percent. What is very important is every time you are falling from these price levels, you are falling less and less," he told CNBC-TV18 in an interview. While the Nifty is showing the sort of resilience to the selling in the market, Homavazir says, financials are at their selling point. Rate sensitives such as banks, autos and realty stocks rallied 1-2 per cent on hopes of a rate cut by the Reserve Bank of India in its upcoming policy meet next month. "So let’s say HDFC, HDFC Bank, ICICI — they have all come to their selling points. Another five percent above the selling points, they will again start to look very bullish. We have been holding a long-term target of Rs 1,000 on HDFC and HDFC Bank. As far as ICICI is concerned, we expect Rs 1,465 there. SBI, which has been a laggard in larger scheme of things, we are expecting it to turn into an outperformer above Rs 2,500," he says. Below is the verbatim transcript of his interview on CNCB-TV18 Q: The Nifty saw some resistance around that old high of 6100. Do you expect that to be taken out technically? A: To reflect a little on the 6,100 level - In 2007, when we fell from 6,138 quarterly close, we fell viciously by about 63-64 percent. Later on we came back to the same price point and fell another 27 percent. Recently, we came again there and fell only 10 percent. What is very important is that every time you are falling from these price levels, you are falling less and less. More importantly, you are coming back to the same levels in less the time. So that is a very important technical development on the Nifty. It is important for the Nifty to move past 6,138 and sustain itself on a quarterly closing basis which will allow the Nifty to get into a very bullish state which will then target about 7,500 again. It is also important to tell you that the flip side is that Nifty needs to sustain in any case above 5,850 as a rising stop level. Also read: India may outperform; like capital goods, banks: JP Morgan Q: What about the financials? What signals are you getting from the Bank Nifty and the individual bank charts? A: All the financials seem to hit some sort of a supply point. While the Nifty is showing sort of resilience to the selling in the market, all these financials are at the selling point. Let’s say HDFC, HDFC Bank, ICICI - they have all come to their selling points. Another five percent above the selling points, they will again start to look very bullish. We have been holding a long term target of Rs 1,000 on HDFC and HDFC Bank and we expect that to come. As far as ICICI Bank is concerned, we expect Rs 1,465 and SBI, which has been a laggard in larger scheme of things, we are expecting it to turn into an outperformer above Rs 2,500. _PAGEBREAK_ Q: At this point, what would you point to though in terms of downside risk for the market because Monday’s move must have got some of the traders on the wrong end of the stick and quite nervous? A: The Nifty has had a pretty good run right from 5,500 and we have been positive although way throughout. Now, what is important is every time it keeps going higher, people are only tuned to selling the Nifty thinking it might just turn and traders have got caught on the wrong end on Monday precisely for that reason. We were looking at 5,971 as a key resistance in the past which has now turned to be a support. So 5,971 is the first very immediate support which the Nifty needs to sustain, failing which 5,850 will come in the picture. Q: There is a lot of focus on oil and gas even though many heavyweights like Reliance haven’t really performed for the market. Is that a space you would watch in order to take the market higher? A: Reliance Industries and ONGC in the oil and gas space are largely the two stocks that can pull the Nifty higher. As far as Reliance is concerned, we have been having a very positive bias and we have been talking about it turning into an outperformer or market performer very soon. We are looking at Reliance moving to about Rs 1,100. ONGC is in a more neutral spot and we want to see ONGC move past Rs 350, to get extremely bullish on it. The charts suggest bullishness but Rs 350 is a point of acceleration. In that case, we would expect about Rs 560 on it. So we would expect ONGC to get there. Q: Between technology and FMCG, both of which have been vulnerable pockets, where do you see the greater risk for the market? A: First let us look at it individually. FMCG pack is placed in a very sweet spot. If you look at Emami and Pidilite Industries these two stocks are wealth creators. In January, we had spoken about them as being some serious wealth creators. Emami from Rs 500 has moved to Rs 700. Pidilite in the same time has moved from about Rs 180 to Rs 290. We expect both these stocks to continue on its outperformance. On Emami we expect Rs 800 which is our first target and second target of about Rs 1,100 and we expect both of these to be attained. Pidilite Industries is a very long story and we expect the stock to go to at least Rs 500. That’s as far as the two main winners are concerned. The other stocks that we have identified later are Hindustan Unilever. HUL right from Rs 280, we have been positive and a target of Rs 600 has been met. We are now re-revising our target to about Rs 800. I think next rung of stocks will involve Dabur India and then United Spirits if at all you would like to consider it an FMCG. As far as United Spirits is concerned, the stock is about do something quite bullish. The charts are suggesting that it could go as high as Rs 5,000. We are very positive on the stock.