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Last Updated : Mar 24, 2020 12:36 PM IST | Source: Moneycontrol.com

COVID-19 or fear! Where is Nifty50 headed after a 1,000-point drop?

Experts feel that considering the fact the Nifty50 is trading near crucial support levels a technical bounce back could be seen while some support is placed at 7200 followed by 6800 levels.


Fear has a new name, it is now known as Covid-19 or coronavirus. Equity markets seem to fall at the same speed with which Coronavirus is growing across the world dismantling the economic systems as more and more cities face a shutdown.

The S&P BSE Sensex and Nifty50, which hit a lower circuit on March 23, witnessed their worst day in history as the coronavirus spread disrupted businesses and sent several states into lockdown.

India has reported 415 cases of the coronavirus but health experts have warned that a big jump could be imminent, which would overwhelm the underfunded and crumbling public health infrastructure, said a Reuters report.

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Reacting to the lockdown in India as well as weak global cues, the Indian market failed to hold onto crucial support despite measures taken by the market regulator, Sebi last week to reduce volatility.

SEBI halved position limits for certain stock futures, restricted short-selling of index derivatives and raised margin rates for some shares to curb “abnormally high” volatility, said a Reuters report.

The S&P BSE Sensex and Nifty50 were down by about 13 percent in just a single trading session. Fearing the worst, most experts the fall is likely to continue as cases of Coronavirus continue to grow including in India.

As most experts await for a stimulus from the Indian government, most portfolio investors are sitting on a notional loss of more than 40-50 percent of their portfolio which could be either in mutual funds or stocks.

Picking stocks is not easy as most of them have corrected by more than 20 percent. But, amid the gloom and doom scenario which is being painted, the survival of the business comes in question.

For Nifty, the next big support is placed at 7,300 levels, but looking at wild gyrations seen in the market, no support is sacrosanct.

“This is clearly one of the worst phases the whole world is undergoing at present. Not only in terms of financials or economies but also in terms of a health crisis. This uncertainty due to coronavirus pandemic is weighing down heavily on markets across the globe and it was yet another day of carnage for Indian markets,” Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel Broking told Moneycontrol.

“We reiterate in such type of environment, no analysis works and rather than focusing on conventional theories of the stock market. As far as levels are concerned, 8000 now becomes a crucial hurdle, and since we are trading at multi-year lows and no support is being respected, we refrain from mentioning levels as the number is decided on the next course of action,” he said.

Time to become greedy?

Well, the valuations do look ripe from a bottom-up basis, but experts feel that investors should remain selective while picking stocks. Even after falling 30 percent from the highs, the Nifty50 has not made a bottom which is concerning.

Most investors either are scared and the ones who have some cash are scared of a further selloff in the markets. Well, Indian markets will continue to fall till the time we see some stabilization in Covid-19 cases across the globe or announcement of a vaccine.

“The increase in domestic shutdowns to contain the virus also weighed on the sentiment. India has shut over 75 districts along with bus and railway services to restrain the pandemic,” Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Private Ltd told Moneycontrol.

“The steep correction due to the coronavirus impact has made many good stocks cheaper and attractive. The best strategy for long term investors would be to accumulate good fundamental and quality stocks gradually over the next few weeks and months,” he said.

Khemka further added that while it is very difficult to predict the bottom of the market, it always rewards investors in the long term who take the benefit of such a sharp fall. “Markets may continue to fall in the near term, and that’s the time to start becoming greedy. We suggest accumulating 10-15% of overall allocation on a gradual basis,” he said.

Technical picture:

Technically, the Nifty50 witnessed a bloodbath on the D-Street yet again after a short-covering session on Friday. There was no follow up buying after the short covering; on the contrary Nifty witnessed fresh round of selling that was so fierce that it pushed the market into a lower circuit.

Experts feel that considering the fact the Nifty50 is trading near crucial support levels a technical bounce back could be seen while some support is placed at 7200 followed by 6800 levels. It is a sell on rallies market, and investors should not go long on a bounce back.

“The sentiments are significantly gloomy on the street. On the way down, the index breached the swing low of 7832 & is approaching 61.8% retracement of the rally post-2011 low, which is near 7550,” Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas told Moneycontrol.

“On the other hand, any bounce towards 7850-8000 can be taken as a fresh shorting opportunity,” he said.

On the options front, maximum Call OI is placed at 12,000, followed by 10,000 strikes while the maximum Put OI is placed at 8,000 followed by 7,500 strikes.

Despite the measures to curb volatility and short selling taken by the market regulator last week, the Nifty5o index ended the decline with a huge loss of around 13 percent, which is the highest ever daily loss in history.

It formed a bearish candle on the daily chart and made a new 4 years-low. “At the current juncture, the market is in strong bear grip and thus not respecting any support levels,” Chandan Taparia, Vice President, Analyst-Derivatives at Motilal Oswal Financial Services Limited told Moneycontrol.

“As of now, there is no sign of reversal and thus traders should refrain bottom fishing in this market. Going forward, resistance is shifting lower to 8200 - 8500 zone, while the next support is now placed at 7200 and then 6800 zone,” he said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Mar 24, 2020 11:27 am
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