The next one-week perspective being positive the strongest sector has been IT and so I would consider buying into IT stocks such as Tech Mahindra, TCS, Infosys and NIIT tech.
The market might have formed a bottom that could be held on for a week but the break in stock prices is serious this time and more long-lasting. But, the market may see a relief rally in the coming week, Rohit Srivastava, Fund Manager – PMS, Sharekhan, said in an interview to Moneycontrol's Kshitij Anand.
Q) It was a volatile week for Indian markets. The index managed to defend its 200-DMA but do you think the pain is over or in other words have we formed an intermediate bottom?
A) The first thing to do is define intermediate, to me that is 3-5 weeks. We may have formed a bottom that can hold for a week but not for 5 weeks. The 200-day exponential moving average (DEMA) was saved on the Nifty but not on Nifty Bank or midcap indices.
The break in stock prices is serious this time and more long-lasting in my opinion. But, it is time for a relief rally. There is a positive RSI divergence on the Midcap index and the Volume Put-Call Ratio (PCR) is above 0.60 which shows too much pessimism in the short term.
The Nifty may bounce back which would be a dead cat bounce in the coming week.
Q) How are FIIs positioned in the markets? They have already sold over Rs 18,000 crore in the Indian market in February as per provisional data.
A) The recent FII data shows not too much selling at these levels. On the other hand, FIIs are not even selling index futures anymore. In the derivative markets, they have a mild short position in Nifty Futures but they are not adding to it.
My sense is that they are exactly in panic and might start buying if the market shows some resilience. Global cues also have not been very negative recently with US stocks holding their ground. Till that changes, FIIs might not panic again.
Q) What should be the ideal strategy for mid & small caps post Budget which is attracting some bit of selling pressure?
A) The midcap and smallcap segments have had its best ride in the two decades. From 2013-2017 we saw a relentless 4-year run-up in the segment. The best may be over for this segment for now.
What that usually means that you will go through a period that separates the men from the boys. With every other stock in the market ramping up on the midcap theme valuations were excessive.
Not every stock might be worth its while from a long-term investment perspective and valuations have to reflect the long-term potential of a business.
That adjustment process has now started, and investors should actively review their portfolios for losers and reduce exposure to this segment.
Q) What should be the strategy -- buy on dips or sell on rallies in the coming week?
A) There is still hope that we will bounce back from what is an ‘oversold’ market. Once we do get a rally of some kind, I would look at selling it. The question is really on what size of a bounce back to expect. The level of 10,330 is the initial hurdle for the market that it needs to cross.
Once it does, we may expect higher levels near 10,600 or even higher. Once we are there, I would consider selling it. Right now, selling every day, on any small gain in the index does not make sense from a trading perspective.
If you have missed selling this recent market decline then wait for the next opportunity. Trading requires patience. No market will continue to fall in a straight line and in fact, the biggest rallies occur during bear markets.
I would not be surprised if the next one week ends up witnesses one of the strongest rallies in weeks ahead of the US Federal Reserve meeting. So from a one-week perspective, I might buy the dip.
Q) Top 3-5 stocks which are looking attractive at current levels based on technicals?
All of them held their respective 20-day moving averages for the last 5 days even as the market was making new lows. This is a sign of a strength.Any positive move in the market would allow them to take off higher. We are long on them in our trading portfolios. We are also bullish near term on oversold stocks like ICICI Bank from the next week.