To be fair, not too many fundamentals have been supporting the liquidity-driven rally across markets. A lot of economies have been in a bad shape and recovery rates are lacklustre.
Telecommunication companies cannot go for another pricing war to gain market share, so they are now providing various content-driven packages like Netflix and Amazon Prime along with data, Sacchitanand Uttekar, DVP–Technical (Equity), Tradebulls Securities, tells Moneycontrol’s Kshitij Anand in an interview. Edited excerpts:
Q) The Nifty struggled to hold on to 11,000 but found some support near 10,800 levels. What scared the bulls away?
A) The correction was always due as the index registered a large selling bar at the beginning of the series itself, with its high around the crucial 11,800-mark.
The expiry had begun on a low-confidence note but the revival from its intermediate swing low of 11,250 did gather some hopes for an upmove towards 11,800 zones.
Global volatility always kept the traders on the edge but as the news of new coronavirus-led restrictions in Spain and other European countries, including the UK, spread, the once jittery movement culminated into a sharp price cut in the latter half of the series.
To be fair, not too many fundamentals have been supporting the liquidity-driven rally across markets. A lot of economies have been in a bad shape and recovery rates from the economy are lacklustre.
The global selloff gave a good opportunity for the bears to take control and break below the support of 11,200 and eventually below 11,000 in no time.
What we are seeing is some relief rally after such a sharp correction in a relatively shorter period, which may take some more time for the bulls to revitalise and kick start another leg of the rally with fresh impetus.Q) Looking at the September expiry data, how will the October series pan out for investors? What are the important levels to track?
A) The Nifty rollovers stood nearly around 70 percent, which was much lower than its average rollover of 79 percent. So far, for the year 2020, the March series had witnessed the lowest rollovers, close to 62 percent when the index nosedived towards 7,511 during the final leg of the series. This series, too, saw something similar when the index pierced through the support zone of 11,200-11,000 during its final legs.
Institutional activity remained tepid as FII rolled fewer positions in the index fut. While their selling continued in Cash. The Nifty OI was down by 32 percent while Banknifty OI saw an uptick of 31 percent despite falling for close to 13 percent during the series.
This significant dip in the open interest action resulted in yet another record low activity after the May series. Usually, low F&O rollovers display a lack of confidence among traders. Low rollovers in the October series conveys the expectations of a gloomy outlook in the near term with respect to market trend post the sharp sudden selloff.
But, on the final day of the week, the index shrugged off its expiry day losses and recovered to record a strong significant close not only above its previous day’s high but also above 11,050.
Technically, the index seems to have started this series at an important pivotal price juncture, with its major support zone around 10,850-10,800, which is a confluence of major moving averages on various time scales, viz 200 days EMA, 20 weeks EMA along with the convergence of the 5 & 20 EMA on its monthly scale.
Low rollovers despite breakdowns are a sign that the market is waiting for more validation to carry forward its optimism, as many traders shied away from carrying their positions ahead and preferred to remain on the sidelines.
We could see a resumption of the upward trend once the Nifty manages to break above 11,230, while a close below 10,600 could be worrisome for the strength of its broader structure.Q) In terms of sectors, selling was seen in telecom (down 10 percent), realty (down 7 percent) and auto space while the IT sector bucked the trend. What led to the price action?
Another interesting strategic plan by Jio with the launch of its postpaid plan looks aggressive. Now, the telecom companies could be forced to shift their focus not only providing cheap data services but also towards providing a good pack of free subscriptions of various OTT platforms.
Telecoms cannot go for another pricing war to gain market share, so they are now providing various content-driven packages like Netflix and Amazon Prime to their data package.
This might have led to selling pressure as once again telecom companies will see their ARPUs falling to garner market share.Real estate & auto
A slow recovery is keeping the realty sector under pressure as the short-term impact of Covid-19 will have a major impact on all homebuyers. Central and state governments have not announced any market sweetener like a slash in levies and taxes.
This has led to the unwinding of long positions in the realty sector, which has been lacking confidence and thus falling with the rest of the market.
Realty and auto are vulnerable and hence low-hanging fruits within the value basket. Any bump in recovery or news of the second wave of infection will attract high volatility or hit these sectors hard.IT
A significant action in the dollar index led to another uprising in the ongoing rally of IT stocks, which have been strong performers along with pharma.
The sector saw fresh buying interest after Nasdaq listed Accenture posted inline Q4 results with its guidance being largely in line with its consensus estimate of $10.9 billion.
The company also reported its second-highest order booking ever, which added to optimism across its global peers.Q) After the recent fall, is this a good time for investors to deploy cash or should they wait for some more correction?
A) Investors should never look for perfection while timing the markets rather they should always ascertain the broader outlook and keep their strategy ready for optimising the corrective opportunities while navigating within the respective bull trends of their ascertained stocks and sector plays.
We believe that instead of looking just at an index alone, it’s better to look at an individual stock and its sector performance and based on their valuations, take a call for buying.
Since the price trend is at a confluence zone long short positions could be beneficial in the early part of the series. Traders should retain their long-short strategy alongside the progressing trend, which remains choppy in the short term.
While investors positioning for a broader outlook should utilise this corrective action to discover new avenues and opportunities for investing as the major trend remains intact, the intermediate trend, as of now, looks consolidative buy not weak.
Technically, the zig-zag corrective wave from 11,794 seems to be at a climax zone and the affirmation would be a move towards 11,200 while any slippages below 10,900 could be arrested around 10,630 zone, which will also be accounted as an added opportunity to add longs sighting the broader trend to remain firm for a rebound towards 11,800.Q) There are reports that the government can announce a fiscal stimulus ahead of the festival season. What are your views?
A) There is a buzz in the market that the government is looking to announce some sort of fiscal stimulus ahead of the festival season and boost sentiment.
Recovery has been slow and with the pandemic spreading to rural India and states still declaring mini-lockdowns, we don’t see the GDP moving higher.
The October-December quarter is crucial for consumer-oriented companies due to the festival season, so the government is trying to push demand by announcing a fiscal stimulus.
We don’t think it will have a major impact on the economy as the government’s focus would be on the rural economy, with a continuing focus on creating rural jobs and farm schemes and free food and cash transfers. For urban and semi-urban areas, the government might look at providing aggressive job programmes in line with its flagship National Rural Employment Guarantee Scheme.
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