5817 key level for Nifty on downside: Anil Manghnani

In an interview to CNBC-TV18 Anil Manghnani of Modern Shares & Stock Brokers shared his outlook on the market and stocks across various sectors.

Below is a verbatim transcript:

Q: What did yesterday's cut point to for you technically, just a breather after a big run up or do you think the market has run its course in its pullback?

A: It is tough to say but yes, breather was more on the cards. I guess it caught a lot of people unaware as how you can get a 300 point rally in pretty much four-five trading sessions. I guess what happened is, after the Budget, you had a lot of unwinding of long position. The market was very light on the long side and more heavy on the short side.

So, I think that is what has happened. You have got a lot of short covering, no selling pressure because there were not too many longs. I would have expected the market somewhere to stop at about 5,880 odd but it continued all the way to 5,971. I think 5,971 becomes a very key number for us.

If you go back to February after you had the first fall from 6,100 to about 5,850, you had a pullback to 5,971. So, this is a retest of that lower top. So, ideally if you are considering 5,663 as a higher bottom from 5,548 lows of November then now from a bull point of view, you will like to see it even take out this 5,971 which was the February lower top.

So, I think 5,971 and maybe stretch it out to about 6,003 -- which is a 76 percent retracement of the fall from 6,100 right to 5,660 -- that range becomes very important for the market from a bull point of view.

Having said that, since we have had such a big rally, there are some key levels to watch out for - 5,855 first but more so I would like to look at the 50 percent retracement, which is about 5,817. So, somewhere in this range if the market still holds and bounces back then it tells you that the upmove is still on. However, if it starts to take out 5,817 on the downside then it is telling you that this was just a technical pullback and you are resuming a downtrend that you saw in February.

Q: Would you still stay long with a Jaiprakash Associates, which had a good pullback from Rs 67 to Rs 77 or do you think the time has come to take profits there?

A: There is still some upside left. I know it is a little difficult to buy infrastructure stocks when the market starts to correct.

Having said that, Jaiprakash Associates did not go back and break Rs 67 on the Budget day like most stocks made a new low. It retested the previous low and bounced. I still think it has got an unfinished target of about Rs 82. So, even if you get a pullback today, that may be a buying opportunity in Jaiprakash Associates for at least a short-term trade.

Q: How would you play a sector like real estate, yesterday a couple of those stocks came off but is it becoming very divergent, the performances that you see on DLF or some of the Bangalore based companies versus the rest of the pack?

A: I do not follow many of the smaller ones but it looks like DLF is on its own trip and the rest of the pack is completely damaged on the charts. For example, Housing Development and Infrastructure Ltd (HDIL), Unitech, they have all collapsed from their recent highs.

Even DLF, for that matter, has hit a very key level at about Rs 290, it is a 15 months moving average. So, if I had to buy DLF today, I would probably wait for Rs 290 to be taken out or then a pullback maybe into Rs 250-260 range. I do not think I will buy at this point.

So, yes, there is a divergence but it seems to be only one stock that is running away. The rest of the pack looks very poor and more beta names -- where if the Nifty were to fall like Unitech, HDIL, IRB Infrastructure Developers -- all would collapse with the market. So, it is not a sector that I am very convinced.

I feel what is going to happen is even if I have to believe that 5,663 is the bottom for the Nifty for now, I still think the midcap index, the smallcap index and many of the high-beta like infrastructure, realty, metals will go back and retest their February 28 lows -- the Monday after that many of them hit new lows. I think those will happen because if you look at it, we are talking about a possible higher bottom of 5,663 on the Nifty from the November lows of 5,548. However, if you go and check the midcap index or the smallcap index or many stocks like I mentioned sector wise, they all went and convincingly broke their November or October lows.

So, they have already made lower bottoms. For me those will all go and retest. That is why I feel some of these high beta names would still have some downside.

Q: How much in terms of cues are you getting from the Bank Nifty at this point, are you still watching that as an indicator of what the index might do?

A: Yes, it is lagging the market for a change. It has led – in fact if you look at the past three months, it was outperforming the Nifty in terms of retracements on the upside. It broke down much after the main Nifty broke down. So, now on the pullback, its struggling. It is quite interesting because the Nifty did take out the 50-day moving average (DMA), did do even 61.8 percent retracement and greater but the Bank Nifty struggled to do more than 0.5 and struggled to take out the 50 day moving average.

So, that suggests to me that it probably will crack first and then the Nifty. Normally when the Bank Nifty does correct, it definitely puts pressure on the Nifty. I will be little concerned. Even yesterday's trade, Bank Nifty broke much before the Nifty came down towards the last half an hour trade. So, definitely some concerns out there.