As the benchmark index remains under selling pressure, high beta names from the midcap & smallcap index would continue to underperform going forward in the short term.
The Nifty50 has formed a Bearish Engulfing candlestick pattern on the monthly charts and witnessed multiple chart pattern breakdown, indicating a negative bias, Jayesh Bhanushali, Senior Analyst at IIFL, 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 Nifty50 has formed a Bearish Engulfing candlestick pattern on the monthly charts and witnessed multiple chart pattern breakdown, indicating a negative bias.
In the last three trading sessions, the index recovered, taking a support near its crucial 200-DMA, placed at 10,130 level. But, the index recovered on lower volumes and the market breadth continued to remain on the negative side.
Also, given that major short positions remained intact, we believe that fresh short selling would escalate going forward leading to a breakdown in the index below its 200-DMA.
Q) How are FIIs positioned in the markets? They have already sold over Rs 18,000 crore in the Indian market in Feb as per provisional data.
A) Foreign institutional investors (FII's) have pumped out Rs 87,025 crore of equity investments since April 01, 2017. Tracking their short-term future and options positions they have a long/short ratio of 0.9x in index futures, 1.9x in call options and 2.7x in put options, indicating a negative outlook for the March expiry.
Q) What should be the ideal strategy for mid & small caps post Budget which is attracting some bit of selling pressure?
A) As the benchmark index remains under selling pressure, high beta names from the midcap & smallcap index would continue to underperform going forward in the short term.
The ideal strategy would be to buy these stocks in 3 parts, rather than buying everything at one go as eventually. We believe that these stocks would do well backed by improved earnings and reduction in corporate tax rate.
Q) What should be the strategy -- buy on dips or sell on rallies in the coming week?
A) Tracking the derivative data points, the index futures have added around 70 lakh shares in open positions since the beginning of the March series, consisting of mainly short positions.
As out of the money 10400ce & 10500ce strikes have huge call writing positions, we believe every upside up to the mentioned strikes should be used to unwind long positions or create fresh short positions.
Q) Top 3-5 stocks which are looking attractive at current levels based on technical?