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Last Updated : Aug 18, 2013 06:41 PM IST | Source: CNBC-TV18

Sushil Kedia on how to play the falling market next week

If you are an investor with no position in the market right now, then you should keep it that way and wait on the sidelines on Monday. That's the advice from Sushil Kedia, Director (quantitative strategy) of CIMB.

If you are an investor with no position in the market right now, then you should keep it that way and wait on the sidelines on Monday. That's the advice from Sushil Kedia, Director (quantitative strategy) of CIMB.

"If you are right now holding short—you had killer of a day to your advantage—continue to hold that. If you are holding long, you are sitting on a back trade, and I would say wait for a couple of hours on Monday; see after the first two hours have passed by how the market is behaving. There is a good chance that market may start making a final bottom for traders around then. If it does not still hold and 5400 is also gone then based on your recent profitability you will have to choose to be on the short side only," he told CNBC-TV18.

Below is the verbatim transcript of his interview to CNBC-TV18

Q: On Friday the market broke big technical marks and the 5500 also came into the picture. What is your call now going into the next week? First of all what do you think was really taking place and secondly how would you approach the market now? (Also Read)

A: There are many different things that the market is doing across within its internals and across different timeframes. If our focus is currently to talk about next one week – more than 4 percent fall in a single day. It was ever since Nifty futures started, trading has happened on 108 days out of say about 3309 days. That is less than 2 percent chance of such a behaviour.

Now, this can also be interpreted another way round that what market did today. There is so much of pain getting expressed all over and this is not the first time market has done this. It has done the same kind of behaviour over a set of another 100 days in the last 10-15 years. So, nothing is so exceptional except that it comes less regularly.

On the back of a market that had been witnessing carnage for last six months across a large sector of stocks, stocks that are far away from the Nifty. Within the Nifty if you take the top performing five stocks except for 5-7 stocks, it is already equivalent to 5100. So, we have witnessed this kind of a large fall that has not been seen in the recent past. In last six months we haven’t had a minus 4 percent day, so we are feeling very painful today.

In terms of technical levels there are many ways in which technicals play out and maybe we will come back to discuss this in greater length. But if you take next one month view the range for me until 5400 is broken stretches all the way from 5400 to 5900. Within which if there is only 100 point left, so for somebody who is holding no position right now for Monday morning should sit on the sidelines and wait.

Q: You were mentioning this level of 5400 that is important to watch but as a trader how do you approach the next week, is there any trading strategy at all that you would advocate at this point either on the short side or any contrarian call that you would want to give?

A: Any trading strategy that has to be implemented afresh has to begin by first looking at where you are. If you are right now holding short of course you had killer of a day to your advantage. Continue to hold that and your stop losses cannot be very nimble. Given the very large range in a single day typical stop loss for a trader with a 4-5 day timeframe or a 10 day timeframe is maybe less than a percent – three fourth of a percent. This will have to clearly go up to 2 percent.

Now, if there is a stop loss level that is at least 100 points away from here for a winner right now, long entries cannot be entered into on the basis of evidence in any meaningful size until and unless there is a 100 point rebound. So, there are other ways if you are not holding any positions, if you are holding long you are sitting on a back trade and I would say wait for a couple of hours on Monday to see, see after the first two hours have passed by how is the market behaving.

TV is too restricted a medium to explain certain types of charts, but I would say on the basis of certain studies on Monday I would like to wait for a couple of hours. There is a good chance that market may start making a final bottom for traders around then. If it does not still hold and 5400 is also gone then based on your recent profitability you will have to choose to be on the short side only.

However, as of now one should come back on Monday with a mindset to examine for the first two hours. One will increase and go to full position size after 100 point rebound but maybe if the first two hours market is not really falling you start nibbling into longs.

Q: So far the trade was bipolar in banking. You sell the PSU banks and you buy the private sector banks up until at least two months back, over the last two months or so we have seen cracks in private sector banking names. What is the call now going forward, is it a bit of buying opportunity that private sector banking names are presenting or the way to look at it is that maybe now they will catch up with PSU banks in terms of the kind of fall that they had and one should stay away?

A: This question itself has strong implications for the rest of the market also. The sector rotation and right now you are talking about rotation within the sector of banking. Within these rotation while the private banks have been laggards in this down trend and there maybe some more space on them on the lower side there are early signs of bottom building process within the PSU names and they are so deeply oversold.

The same way there was a total consensus on Tata Steel that its numbers are going to be so bad. Everybody missed it, people have been tracking it fundamentally so closely and how badly the entire street missed the number. There was a massive recoil back up that kind of a possibility is building up clearly on all the PSU bank names. Within the larger sector rotations for the market the whole BSE metals index, the way it is looking like will roar up and next will be banks. I think somewhere along this conversation you were talking about if IT still remains to be the hiding space. So far it has not cracked so there will be a lot of people hiding in there, but whether will succeed in saving their capital it is doubtful. It is clearly a market where very severe sector rotation has been happening right since January to now on the large cap names. Within these FMCG as you rightly said cracked out completely and now it is turn of IT to really collapse.

A larger picture which is important for all to look at is a favourite indicator of mine. When you divide the CNX 500 index price by the Nifty index I create what is called as a thrill index, as in the smaller and the wider stocks are performing. For the last seven months there has been a continuous slide in that and a number of technical indicators, momentum diversions and other things are clearly telling that this flight into safety is now going to halt here. It is going to be a flight out of safety also.

So, the call to take is, is the wider market going to keep on collapsing and even this large cap names will collapse also or there is very deep value already in a very wide variety of stocks. Maybe out of the safety money will move out and for entering rallies to play out. I agree with Ambareesh's view that 4800 and 4500 Nifty is possible, but nothing is going to come in a straight line. It has been like very illusive for the last seven months since this top. So, within sector rotations I will not start buying in PSU banks now but will look closely at them. IT is a sell, pharma is going to be a sell going forward and maybe outside the index there are lots of stocks. It is time for you to perhaps pick up some stocks for playing a three months rebound.

Q: Let me come back to my first question to which you said that you will come back on Monday morning, maybe spend two hours and see how the Nifty is doing. Is the Nifty breaking that low of 5410, what is the worse case scenario for this market looking at the charts?

A: Not because Nifty may break that 5400 number on Monday or Tuesday but even if the severest rally potential that I said, the highest potential for a rally is no more than 5900. Suppose even if that played out, the call still remains that going forward into the year will see levels below 5000 and not just in India but this is a phenomenon where the dollar index simply has been in a 20 year down trend. Within this current year is a complex rally playing out in the dollar index, which is getting corroborated by a fact that my view remains intact for the last six months – it is getting postponed and delayed.

Markets will take time, the British pound and the euro will also collapse this year the same way gold collapsed. The global cycle of rotations within which the dollar is going to be very strong almost all safe things are going to be collapsing. On that view I remain intact that Nifty will be going down to less than 5000 but I am not going to mix that with an idea that if it immediately breaks 5400 I will start calling for 4500 for a simple reason. Let us forget charts, let us forget everything else – in a day whenever very large movements happen on either side the popular in the consensus opinion has been that just sell and get out. Whoever's stop loss would have had to be hit has been hit, the popular thing today was selling, let us ask a question who was buying? That name will never come out, it is a gutsy or the courageous or the one with a larger tolerance for pain.

A rebound can always just go out and clear up this consensus today in two hours on Monday. So, I am not going to be coming to the screen on Monday with a mindset to just go and join the melee keep selling. I will wait and watch who are these contrarian buyers and why are they buying.

Disclaimer: The above views are the personal analysis of Sushil Kedia, President ATMA and do not  reflect any opinion of ATMA

To know more about ATMA, please visit

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First Published on Aug 17, 2013 03:02 pm
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