Shrikant Chouhan
Yes Bank, Zee Entertainment and Tata Motors, which were badly affected in the past, recovered smartly in the previous week. Whereas the index heavyweights were severely punished with over 8 percent fall seen in few of them viz. Hindalco, SBI, M&M and Hero Motocorp.
If we consider sector specific trend then the erosion was specifically seen in PSU Bank index, which sank 7 percent and other indices except media fell over 2 percent.
Last week's fall was due to a marketwide sell-off after reversing from the major level of 11,118-11,120 but Nifty is still well above the level of 10,500, which is the surprising part of this fall.
Looking at economic parameters, there is a big divergence in quarterly earnings of companies, which are better than expectations. Indian currency and oil prices are flat to neutral.
World indices including Asian markets have gained heavily in the past few weeks, whereas our markets are facing severe pressure to sustain at higher levels.
The inflation rate is down that makes the case for further rate cuts in the near term, which is certainly positive for industries in the long run.
By observing the above data points, we are of the view that at lower levels, we should be cautious while adding short positions if Nifty breaks 10,500, which could be a false breakdown.
My observations and findings tell me that during elections the only constant thing would be volatility. Hence, we should be highly flexible with our views and should avoid huge commitments.
Technically, if Nifty doesn’t break 10,580 in next two days then we can see something dramatic. In that case, we are of the view that Nifty would spend time at the lower end and eventually form one more bottom between 10,480 and 10,550 and that could again lift indices to 10,900.
On the other side, if Nifty breaks 10,580 in next two days then the fall could be severe and eventually push Nifty to 10,200 or 10,000 in the next few weeks.
Here we are not painting a bullish picture, but at the same time if we consider the recent trend of price actions between broader market and a few Nifty stocks then there is huge divergence, which is an indication of weak sentiment rather than weak fundamentals. Be cautiously optimistic in the market.
The author is a senior VP - Technical Research, Kotak Securities.
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