'Market focussing on bad news, but won't be easy for bears'

According to Narayan, the market has not been respecting any support levels. The next major support level for the Nifty is 8000. But, there is no saying if it will hold.

He says it is a good time to start accumulating quality stocks that have corrected 15-20 percent or  more from their recent highs.

"But one will have to be prepared for another 100-point gyration in the market," he says.

It is when market stops reacting to bad news that the market may be close to bottoming out, he says.

Narayan says some sectors already are showing resistance to go down further.

For instance, metal stocks and PSU banks have fared better than other sectors over the last few trading sessions.

Narayan is bullish on Tata Steel and SAIL, and says both stocks are looking good on the charts. 

Below is the transcript of CK Narayan’s interview with Latha Venkatesh and Sonia Shenoy.

Latha: It looks like an easy game for the short sellers. Will it be yet another easy day – start short and collect the booty at the end of the day?

A: It is interesting that you should mention that particular fact because what market history has shown is that whenever it becomes easy to the play the game in one particular direction, it is probably when that game is about to end. So, it has been as you rightly put it, just come to the market, show up in the market in the morning, short whatever you fancy and collect some money at the end of the day and go home. It has been as easy as that.

There are couples of things with this market. There is no dearth of good news and there seems to be a fair mix of some adverse news also. However, the fact is that the market seems to be happy concentrating only on the adverse news. So, you had good numbers coming up then they said so what and then they slammed the stock down. You can take any of those, for example private sector banks which came out with very decent numbers.

Then you had something which beats the streets expectation, let us say marginally or by some 4-5 percent or 10 percent like ICICI Bank for example, then they slam that one also down. Infosys comes in within whatever was expected, they slam the stock down. So, very clearly the market wants to go down; that is what is the scene, the news is irrelevant. They said Rs 40,000 crore then they made to Rs 600 crore and then they said it might even be lesser than Rs 600 crore. Was the market bothered? Not at all.

So, the sentiment is clearly bearish and so long as the sentiment remains bearish market will latch on to anything and everything and find an excuse within that to go down further. You have Federal Open Market Committee (FOMC) meeting starting off today for a two day session, the market can latch on to that as well. You will have some other results coming out which will be fair but that would be known but something which will be weak and that will be pounced on. So, that is where the trigger lies. 

When the market stops reacting to some seeming bad news or some not so rosy news, I think that is when we will see seeds of recovery. I think we are seeing the first hint of that in the banking sector. You had Andhra Bank, not really one of those major ones and you had that stock posting again and it led to Punjab National Bank (PNB) posting some gains and then the public sector banks as a whole posting a small marginal gain.

They are not strong enough to affect the market sentiment as such but then those are some hints which are coming through that the good times for the bears, the easy times that they had maybe about to roll out to an end. Now, whether it will happen at the current level of 8,200 of Nifty or as the consensus goes somewhere around 8,000 because that is the next technical level where the supports lie, so that is debatable.

The question about all the support levels because we keep talking about them and if you look at the charts, so in our progress from 5,000 to 9,000 you will have so many support levels. You will have some average, some trend line, some retracement or some technical tool giving you a kind of a support. The key thing however is that is the support being respected by the market and so far the fact of the matter is that they market has not chosen to respect any of the support levels. 8,200 is yet another support level, 8,250 on the futures – will the market support it, respect it. As far as the evidence goes up to last evening the market has chosen not to.

So, we have to go with the trend and that trend says that if we break this we will go to 8,000 and then we will do the same set of calculation again. Is it respecting it? Is the market responding to a bad sentiment or is that changing around? Collectively between those two pieces of information you will have your sign of a bottom.

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Sonia: ICICI Bank has fallen 15 percent this year. For a longer term investor is this a good time to be putting some money into that stock or do you think you could get better levels in the months to come?

A: If you look at stocks at large, lots of them, 15-25 percent, Wockhardt and all 40 percent so from a long-term investors point of view whether ICICI Bank or any other bank or any other set of stocks there is clearly no disputing the fact that it is a buy on dips and 15 percent off the highs, 20 percent off the highs is a very decent place for people to start nibbling at the stock if not coming into it in some decent way.

The question is what will they have to handle? They will have to handle, let us say 100-200 point market gyration which will go against them. So, there has to be some amount of conviction in whatever it is that you are doing and this is true whether you are a trader, medium-term investor or a short-term investor.

If the conviction is there that ICICI Bank is a stock – (a) that I wish to own (b) that I wish to own at the current level (c) I wish to buy it in various stages and this looks to be a good stage for me and (d) that I would have to handle some gyrations against me then most certainly long-term, short-term, medium-term whoever it is, can look to buy stocks at these levels.

We are clearly in a bull market but the bull market is suffering one of those usual reactions and it would take a little bit of conviction to go in there and buy it and not get shaken by the gyrations.

Latha: Among the Nifty stocks where do you think the resistance to fall has started? Where may you buy for an investment purpose without fear of too much losses coming in?

A: I would look at for that particular aspect of your question is what is the sector which is really resisting this decline? It is not very difficult to find that the metal sector is something that is seemingly doing far better than most of the other sectors. So, I would definitely go into the metals. I like the placement of the prices on the charts with respect to Tata Steel, with respect to Steel Authority of India (SAIL) so these are two I would take a look at. I would wait for Hindalco Industries to show a little more spunk on its charts before buying it. More certainly this is one sector where I would put in some amount of money. They are all down and out so you are really not buying expensive.

Second like we just discussed, the public sector undertaking (PSU) Banks have been registering it in the week earlier they are continuing to do so now. May be another couple of let say non negative results or slightly positive numbers from some of the banks could actual set the trend a bit rolling there in the PSU banks. Private sector banks have been actually coming out with decent numbers. They have taken a hit; Axis Bank in particular took a hit. However, I saw that Axis Bank also had weathered the storm some what in the trading of yesterday.

So, private sector bank is something that I would look at because if you notice that Bank Nifty during the last week’s carnage fell about 1.5–3.7 percent of the Nifty. So, the banks are already resisting the trend or the push to the down side so I would prospect there. It is a popular sector, well patronised by all shades of players. So, staging a rally there would not be very difficult.

Pharmaceutical has been bashed, continuous to be bashed but I think they are all 25-40 percent - that is a bit overdone in the shorter term. You can expect a very short-term rally so traders can take interest in that and short-term investors can take interest in that. However, medium-term players should wait for some kind of ranging into which they can buy in a graded way into pharma.