Stay put in markets as long as FIIs don’t turn net sellers; 3 stocks to keep an eye on

Almost half of Q4 of FY19-20 has gone under the fear of pandemic and beginning of lockdown. So it is imperative that in the coming Q4, the growth rate will turn positive.

Though its base effect, the initial response to unlocking was quite encouraging and from an economic point of view, we should certainly be more positive from here on.

Absolutely, markets look forward, and hence despite economic data was frightening, markets climbed all walls of worries.

Yes, we all can say that liquidity was strong but liquidity moves where there is an opportunity. Going forward, it won’t be surprising to see volatility going down and reward sectors that have managed to weather the storm efficiently.

We may not see blanket selling or buying which has been the phenomenon of CY2020.
Q2) Nifty50 reclaimed 11,800 while the S&P BSE Sensex rose above 40,000 in the week gone by. What led to the price action?

A) On September 24, very few of us would have thought that the market will actually scale back to the previous swing high which was around 11,600, and then surpass it and move even higher closer towards 12,000.

Needless to mention, the IT sector changed the sentiments in the market and that’s where the shift has been happening in portfolios.

However, from a contribution perspective, it is banking. The momentum started a bit later in the form of short-covering in the banking sector. So as the sentiments changed, driven by global markets, shorts squeeze led a big rally in banking space.

Q3) What are the important levels and events (micro & earnings) which one should watch out for in the coming week?

A) Firstly, the earning season. IT sector has set the tone with TCS quarterly numbers and more than numbers, market is excited about the buyback of TCS and Wipro which led to an impressive rally.

This also leaves less room for disappointment in them. Later this week we have HDFC Bank announcing its numbers and that’s one key stock to keep an eye on.

Early next week we will be analysing some of the key NBFCs numbers. After the recent run-up in all these names, the market will be very vary to take disappointment in its stride.

As far as levels are concerned we are already at an important juncture for Bank Nifty. Last time it corrected from its 200-DMA which was around 25,100 levels. Now too, the index is at its 200-DMA which is around 23,800, but this time the setup is not looking weak.

The rally will sustain if it continues to move higher and surpass the previous peak of 25,100.

In Nifty, corrections due to long unwinding and up moves on the formation of long positions is a sign of an uptrend. Before big correction in the latter part of Feb 2020, it took resistance around 12,200-12,300 zone and that’s the level one should keep eye on.

With one side move in Nifty, support levels are far below, which makes the life of a positional trader difficult to identify stop loss levels without compromising on risk-reward ratio.

Q) What should investors do --- Sensex touches Mount 40K while Nifty50 trades above 11,800 levels? Time to put fresh money, hold for a dip or book profits?

A) As we enter into earning sessions and big international events lined up for next month, the market will be very stock-specific and we may not witness blanket buy or sell.

However, one should stay put in the market till FIIs don't start selling in the cash market. As of now, they are buying aggressively in the cash segment.

We did mention a fortnight back that anticipation of big correction would disappoint and that stance still remains.

Fresh money can come into the market either with a very large time horizon which irons out short-term volatility or if its hot money then on the upside buying calls would be more advisable then buying futures because as we move towards the end of this month, implied volatility may rise and keep premiums high.

Q) There are 178 stocks above Rs 500 crore market cap that are trading below 200-DMA despite strong rally seen in benchmark indices. There are 19 stocks that fell 10-50% since March (six months) and are also trading below 200-DMA. Does that mean that investors will be better off moving away from laggards?

A) When your investment is down substantially it is easier said than done to move out from it and move into something which is doing well, even though it is an ideal strategy.

We are in times where bigger firms have the wherewithal to sustain this period of uncertainty.

This has enlarged the performance gap between winners and losers. New money should go into performers and not in averaging something which has not done well.

Yes, there will be names that do better going forward but portfolio allocation should not be aggressive in such names.

Q) Please suggest 3-5 trading ideas for the next 3-4 weeks?

A) Here is a list of the top three trading ideas. Returns are calculated from October 12 closing price.

LIC Housing Finance: Buy | LTP: Rs 301 | Target: Rs 364 | Stop Loss: Rs 271 | Upside 20%

The stock has shown accumulation of long positions in this series and prices have shown strength with rising volumes. The stock has taken support near the stop loss level and the price chart pattern suggests that the recent high around Rs 323 may get challenged soon.

UPL: Sell | LTP: Rs 506 | Target: Rs 451 | Stop Loss: Rs 526 | Downside 10%

In a rising market, this stock is underperforming. A negative price pattern has developed and we have seen the accumulation of short positions in the futures segment. A close below 490 would strengthen the reading on the down move. Havells India: Buy | LTP: Rs 704 | Target: Rs 776 | Stop Loss: Rs 662 | Upside 10%

Havells India is in a strong uptrend but the stock has the tendency to give the opportunity to buy on dips. Long positions are getting formed and the stock seems to be respective its 20-DMA support where we would suggest going long.

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