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Nifty may dip below 18,000 before a sustainable rally: Geojit Financial Services

Chief market strategist Anand James says despite VIX sinking to 15, the risk appetite has not been strong enough to trigger a sustained rally across Nifty stocks

November 22, 2022 / 07:08 AM IST
Anand James of Geojit Financial Services

Anand James of Geojit Financial Services


The 18,604-mark on the Nifty50, the record high touched in October 2021, is not a breakout level, Anand James of Geojit Financial Services tells Moneycontrol in an interview. “We could see 18,800-19,000, but could still get to the sub-18,000 level before a more sustainable rally emerges," he says.

Usually, it is the largecaps that help indices surge past record peaks, and help sustain the momentum. But with buying yet to become broad-based, across sectors, there is a clear case of looking for dips in select midcaps, while staying invested in the largecaps, the chief market strategist advised.

For newcomers, James, who has more than 15 years of experience in capital markets, has this advice: as commonplace and simple as it may sound, trend identification is the most important element in a trading set-up, be it for intraday or positional. "This becomes especially so at the entry level." Edited excerpts of the interview:

Technically, do you think it is difficult for the Nifty50 to hit a record high?

The record peak is within grasp and we could as well break it but the key question is one of sustainability. As much as 26 percent of the Nifty50 stocks fell below their respective five-day low last Friday (November 18). Despite VIX sinking to 15, we have not seen a risk appetite strong enough to trigger sustained rallies across the board among Nifty50 stocks.

Clearly, the last fortnight has seen risk-off trades surfacing with each leap, though dips have been enthusiastically bought. Given the low IVs (implied volatility) across Nifty50 stocks, the jumps have not been sizeable to encourage traders to chase rallies.

Also read: Top 10 trading ideas for next 3-4 weeks in a market moving largely sideways

In other words, the 18,604-mark is not a breakout level. We could see 18,800-19,000 but could still get to the sub-18,000 level before a more sustainable rally emerges.

Do you think technically the US Dollar Index has already peaked out a couple of weeks back?

The dot plot for Fed’s December meeting is currently projecting only less than a 20 percent probability for a 75bps hike, as opposed to a 64 percent probability a month back.

The sharp pullback in the dollar index, since hitting a 10-year high in late September, certainly amplifies the argument that a policy pivot is near.

However, one wonders if it is too early to assume so, given the fact that the Fed appears to have been behind the curve in fighting inflation so far.

In fact, even before this argument came to the fore, there was enough reason for the present decline in the dollar index, as it has been on a relentless uptrend since May 2021 from the 89 levels. That surge was strong enough to pierce a seven-year parallel trading range, and a break-out of such magnitude certainly will have more legs.

This theory will have its first test on the approach to 104, the breakaway point, which also meets the rising trendline that has held prices since May 2021. If the upswing thereof succeeds in breaching 110, we could see another hot streak of upsides aiming 128.

Also read: This research head sees global funds rushing in for Indian equities in 2023

What is your strategy with respect to the Bank Nifty that traded near its record high?

Clearly, Bank Nifty has been a standout performer in recent weeks. Surprisingly, the run-up has been dominated by state-owned banks, putting private banks to a shade. The mid- and small-cap names in the PSB index gathered good steam, giving more legs to Bank Nifty even as the Nifty faltered on the approach to its record peak.

Bank Nifty requires a treatment different from Nifty, as it has only a few stocks in the index, and the weightage is skewed towards a handful. Most of the biggies are close to their all-time highs, but those in the midcap space continue to attract buying interest despite having rallied steeply, as they continue to trade at a significant discount to their respective all-time highs.

Usually, it is the largecaps that help indices surge past record peaks, and help sustain the momentum, but with buying yet to become broad-based across sectors, there is a clear case of looking for dips in select midcaps, while staying invested in the largecaps.

Also read: Nifty is headed to 15,200 in six months, then will rally sharply for five years: Anant Acharya

What are the preferred technical parameters that you follow while selecting any stock or segment or rather what are the technical parameters you suggest to new traders before taking a decision on any stock or segment?

As commonplace and simple as it may sound, trend identification is the most important element in a trade set-up, be it for intraday or positional. This becomes especially so at the entry level. While oscillators are the mostly widely used indicators, as they give you a grip on how quickly a turn in trend would evolve and thereby, help you with optimal timing, the fact that they become mostly impotent in a directional market underscores the need for identifying the trend first.

Trend identification could involve drawing the trendlines right, identifying sideway phases, continuation and reversal patterns, and finally seeking the confirmation of each of the deductions across periodicities.

The IT sector again failed to hold on to 30,000. Do you see strength building up in the sector to make a big move in the coming months?

This sector has been a hot potato for a long time now, having found persistent selling in all months this financial year, except for July, before seeing institutional inflows of over Rs 18,000 crore in October.

Even though the Nifty is near its all-time high, the IT index is nearly 25 percent away from the all-time high, with its component stocks away more than 30 percent on an average. This number could have been worse, had it not been for biggies like TCS and Infosys, which have weathered the onslaught but even they are away from the all-time high by at least 17 percent.

But this presents an opportunity as momentum slows down in other sectors as they are much more closer to their respective record peaks. Most other sectors have formed bottoming patterns and look ready for a higher run.

What should investors do with the auto space that seems to have healthy support at the 12,000-mark?

Except for Bharat Forge, which has a defence side as well, and a few select frontline stocks, the auto sector has failed to find an upside momentum. Though 40 percent of the auto index stocks had pushed beyond their September peaks when we had an interim high in the Nifty, only Bharat Forge is now above that peak.

On average, the sector is 22.5 percent below its respective all-time high. Clearly, sectoral strength is missing. Stocks are either coming off from recent upsides, or only in the beginning stages of bottoming patterns. The sector needs more time before a re-look.

Disclaimer: The views and investment tips by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Nov 21, 2022 01:59 pm