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Last Updated : Mar 26, 2018 10:42 AM IST | Source:

Market oversold as 65% of Nifty stocks trading below 200 DMA: Kotak's Chouhan

The current correction in stocks is "an opportunity for medium to long-term investors to collect growth companies", according to Shrikant Chouhan, Sr. Vice President – Technical Research at Kotak Securities.

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The current correction in stocks is "an opportunity for medium to long-term investors to collect growth companies", according to Shrikant Chouhan, Sr. Vice President – Technical Research at Kotak Securities.

In an interview to Moneycontrol's Kshitij Anand, Chouhan said technically, he was of the view that ongoing pain in markets should end very soon.

It was a volatile week for Indian markets and a lot must have changed on the charts. The Nifty broke below its crucial 200-DEMA and 10,000 level for the first time since October 2017. Do you see further pain in the market for the coming week?


Technically, we are of the view that the pain should end very soon. Instead, we think this is an opportunity for medium to long-term investors to collect growth companies at current prices and more if the market corrects further. The reason behind the same is mainly due to following three reasons.

1. As per price pattern, Nifty is nearing to major retracement supports (9900/9950) based on monthly charts.

2. Nearly 65 percent of Nifty and 70 percent of Nifty 500 stocks are trading below their 200 Days SMA, which is an indication of oversold scenario in the short term for the markets.

If we compare the current fall, with the first fall of 2015 (Nifty was down by 10 percent and fell to 200 days SMA after a long and sustained rally of 14 months), current situation is adverse, because only 50 percent of stocks were below 200-days SMA in the year 2015 (compared to the current 70 percent.)

3. PCR and VIX are suggesting us that the market is due for a strong pullback in the near term.

How are FIIs positioned in the market? Do you think the Fed rate hike and fears of trade war could push them to change their stance towards Indian markets?

FIIs have remained net sellers in our equity market for the last 2 years, because of rapid development in the US economy and other developed markets.

Fundamentally, the two (Fed rate hike and Trade war) cannot go together. News flow on our domestic front, are highly uncertain and uncertainties are negative for equity markets, which is keeping the big investors on the sideline from buying aggressively in the market.

What should be the ideal strategy for mid & small caps which are underperforming benchmark indices by a wide margin?

Our strategy is to stay away from such mid & small caps. Let the market stabilize and give us hints of reversal. However, wherever growth is clearly visible or turnover is above average, investors should show courage to buy with a medium to long-term view.

What should be the strategy -- buy on dips or sell on rallies in the coming week?

As the market is down by nearly 11 percent from its highs and it is the first fall below 200-days SMA, after a period of 13 months, our strategy should be to buy on dips in the coming weeks.

Top 3-5 stocks which are looking attractive at current levels based on technical?

Based on technical, we like Ashok Leyland, Reliance Industries, and Maruti Suzuki. These stocks are still comfortably trading above 200-days SMA and money flow index is not showing any major outflows in the recent selloff.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

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First Published on Mar 26, 2018 10:42 am
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