The bounce-back potential looks to be limited but the Nifty is unlikely to see a March-kind of collapse again.
September has always brought out the demons in the Indian market and this time too the month has not been an exception.
Foreign institutional investors (FIIs) who had started the month by having over 66 percent of their index future positions on the long side, systematically reduced their longs and kept piling up shorts. By the end of the month, they had around 50 percent of the index future positions as longs. That is a massive climb down in the stance and if we were to have the pre-August trend back, then we are probably looking at a short heavy FII holding in the index futures in October. Such a short buildup has already dragged the Nifty 1,000 points lower from the month's peak of 11,794, stoking fears of a further meltdown.
With the September series' closing near 10,800, we have retraced 23 percent of the March-September rally. Ideally, this Fibo level is a point of turn, which is where the October series would weigh in, in the initial days. However, standard deviation studies suggest that the bounce-back potential may be limited to 11,324-11,476, and the prospects of the Nifty slipping into the 10,500-10,150 region needs a serious consideration.
Having said that, we had long identified 10,000 as a near bottom, suggesting that we may not be reliving a collapse akin to that of March 2020. This potentially makes October a stock-picker's month, as the Nifty tries to find its footing again. Alternatively, a direct rise above 11,476 should re-open chances of 12,500 again. The potential of a vertical recovery looks limited though.
Here are a few stocks worth considering during this period of consolidation:
Bharat Electronics could fetch Rs 100
BEL is yet to show signs of a turn but the stock has been on a dip since mid-August and could potentially slow down in October. Dips to Rs 81.5 could be an ideal entry point for a move towards Rs 100 or more with the stop loss placed below Rs 72. If you do not have defence exposure in the portfolio, this would be a good addition, given the volatility in mainstream stocks. The stock traded at Rs 90.45 on September 24.
HEG aims Rs 900, if losses do not exceed beyond Rs 700
HEG, along with Graphite, has seen substantial selling since late August. However, having come closer to July low of Rs 700, HEG has found good delivery volumes, which is a sign of a bottom formation and an attempt to push higher towards Rs 900 or more. Stop loss may be placed 5 percent below Rs 700. The stock last traded at Rs 741.95 on September 24.
Dr Reddy's Labs still has a lot of steam left
COVID-19 has certainly put pharma in a different orbit altogether and Dr Reddy's Labs has been a standout performer. But the breakout rally on September 16 left investors waiting on the sidelines for appropriate re-entry level. Rs 5,000-4,860 could be a potential entry point for the next expected move aiming Rs 6,000. Stoploss may be placed below Rs 4,760 or Rs 4,460 as permitted by one's risk appetite. The stock last traded at Rs 5,027.40 on September 24.
(The author is Chief Market Strategist at Geojit Financial Services.)Disclaimer: The views and investment tips expressed 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.