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Last Updated : May 11, 2019 03:30 PM IST | Source: Moneycontrol.com

Volatility likely to rise further; sell on rally, Nifty may slip towards 11,000

Volatility is expected to increase which also makes the possibility of stops hitting faster and therefore stops must be farther than the usual levels.

Moneycontrol Contributor @moneycontrolcom

Jimeet Modi

The Indian bourses experienced a rough week with the indices witnessing a steep fall. Most of it can be attributed to the fallout from the US-China trade war escalations which led the markets on a downward journey from its tops of 11856.

The pain in store seems far as a further depreciation in the Yuan will only pressurize our currency and our stock markets eventually as the dollar keeps gaining strength amidst the trade escalations.

Looking at the global markets as well, there is an extreme amount of weakness with the domestic political scenario making market participants more nervous and wary of taking any major positions.

It seems that the market meltdown is influencing Political Analysts too, who have taken a U-turn from an NDA majority prediction to a lower NDA number prediction. A few weeks ago the same analysts had

predicted a comfortable NDA win given the market’s upward rally.

It is obvious that the analysts are making their predictions after looking at the frequent change in market conditions. Hence, we recommend investors that they must form an independent view of their own and not blindly follow third-party opinions.

The massive fall this week in the indices was led by India’s bellwether and oil-to-telecom behemoth Reliance Industries. However, that is just the tip of the iceberg.

It was seen that the other large caps are cracking as well which shows that the euphoria which took the markets upwards is what is bringing it down.

Amidst the political uncertainty and the rising geopolitical tensions, the earnings season is underway in our domestic markets in full swing with numbers pouring in from all sectors.

Looking at the results reported till now from a macro point of view, it can be noticed that the pickup in corporate profits is subdued this quarter but nonetheless certain companies are trading at premium valuations.

On the other hand, there are companies such as Vedanta which reported a de-growth of 5 percent in its bottom-line with ICICI Bank and BSE also reported a double-digit de-growth in their PAT, however, they are fairly valued when compared to its peers.

Technical Outlook:

Nifty50 swiftly slipped after making a failed attempt to make a new high. Consolidation near the double top formation eventually resolved to lower levels thereby indicating that 11000 can be a reasonable target to expect before this month end. Current levels are around 50 percent retracements, where the market is expected to spend some time before slipping lower to 11000 levels. Sell on rally should be adopted by traders.

Volatility is expected to increase which also makes the possibility of stops hitting faster and therefore stops must be farther than the usual levels.

The important question next week would be what will Mr Markets look at and react?

US-China trade riff, Indian elections or Quarterly results!

While the answer is uncertain, it will be a tough match between the trade war and the outcome of the election with the ongoing quarterly results season having taken a backseat.

Therefore, volatility will remain at its peak as the battle intensifies. Some important results to look out for the next week would be ITC, HDFC Limited, Honeywell, and Hindalco etc. Investors must continue to keep a watchlist of quality companies for their portfolios especially in the mid cap space to buy if there is sudden panic in the market. Nifty closed the week at 11278.90 down by 3.70%.

The author is Founder & CEO, SAMCO Securities & StockNote.

Disclaimer: Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​

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First Published on May 11, 2019 03:30 pm
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