“The chart structure of BankNifty looks weaker than Nifty,” Vinay Rajani, Senior Technical and Derivative Analyst at HDFC Securities says in an interview with Moneycontrol.
He believes that BankNifty will underperform in the coming days. BankNifty has got strong resistance in the zone of 40,500-41,000 band and the same should be utilised to exit trading longs, he said.
The CMT charter holder with more than 16 years of rich experience in the financial markets sees an opportunity to create long positions in gold finance and jewellery companies, oil marketing companies (OMCs) and paint companies, for the short term.
Do you think the Nifty has formed its bottom at around 16,850 and is ready for northward journey towards 17,500-18,000 area?
For the time being yes. As any bear market could have a pullback rally, we can expect the same from Indian indices too. The index has witnessed a fall of almost 11 percent from the all-time high of 18,887 registered in December 2022. Indices have been forming lower top and lower bottom formations on the charts, which indicates a bearish trend in the longer time frame.
However, we can not rule out the possibility of a pullback in the short term. For the last two trading sessions, tug of war is going on between bulls and bears. On March 16, 2023, Nifty made a “Long-Legged Doji” candlestick pattern, which indicates a probable short-term bullish trend reversal.
FIIs have been heavily short in the last couple of months and their long to short ratio in Index future has reached to as low as 0.12, which is extremely oversold. A band of 16,800-16,850 has been a good demand zone and the same can act as short-term support for the Nifty.
We believe that Nifty could show a move towards the 17,500-17,600 band in the short term and the same should be utilised to lighten long positions. A level below 16,800 would negate the chances of a pullback in the Nifty.
Bank Nifty also showed similar kind of trend (like Nifty) during the week, as it was a major-affected sector by the US & Europe banking concerns. Do you expect this would play a key role in market recovery, if any, going ahead?
The chart structure of BankNifty looks weaker than Nifty. We believe that BankNifty will underperform in the coming days. BankNifty has got strong resistance in the zone of 40,500-41,000 band and the same should be utilised to exit trading longs.
Is the correction over for IT stocks now as the index fell nearly 10 percent from its February high?
Stock selection would be the key criteria, as a big divergence can be seen while we browse through IT company’s charts. We have been observing that the IT index has a negative correlation with BankNifty. Most of the time we saw that when IT stocks rally BankNifty underperforms and vice versa.
We believe that in the current time, Bank Nifty is more vulnerable and riskier sector to bet on compared to IT. So the IT sector has a relative advantage over banks at least for the short-term.
The technical setup of KPIT Technologies, Sonata Software, Tech Mahindra and HCL Technologies is bullish, while tech giants like TCS, Infosys and Wipro are looking weak on the charts.
Which are the stocks to consider for buying especially after a month-long correction? Any great pattern formation that indicates a buy in those stocks?
For the short term, we see an opportunity to create long positions in gold finance and Jewellery companies, oil marketing companies (OMCs) and paint companies. Indian gold prices have registered new all-time and look promising on charts for further gains. Companies in the gold finance and jewellery business can benefit from the same.
Brent crude has recently seen a bearish breakout on the weekly charts. Falling crude prices can auger well for the Indian OMC as well as for paint and some of the FMCG companies.
One sector that outperformed in the last month is Nifty CPSE, which gained around 5 odd percent making higher highs higher lows since July last year. Do you still see a strong opportunity in the space?
CPSE Index has outperformed the market with a very good margin in the past two months. We saw the index hitting an all-time high in the current month itself. However, the monthly RSI (relative strength index) of the CPSE Index has reached the overbought zone, which does not give that confidence to create fresh long positions in the PSU stocks at current prices.
The risk-reward ratio does not look favourable at this point in time. Therefore, investors should wait for the stock prices to correct 8-10 percent for the fresh entry.
What does the current breadth in terms of 200 DMA in the Nifty 500 stocks indicate?
At present 38 percent of the stocks from NSE500 are trading above their respective 200-day moving average. Any number below 50 percent is considered to be a bearish sign for the market, as far as the breadth indicator is concerned. This reading can also be used as a contrarian indicator but the current reading is not indicating any extreme setup where we can expect the trend to reverse.
At present, this number suggests a weakness in the breadth of the markets.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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