The downtrend in the market is far from over, if technical evidences are considered, and the broader index may decline to a level anywhere between 13,950 and 13,500, says Mazhar Mohammad, Founder and Chief Market Strategist at Chartviewindia.
“We are not buyers at these levels but wait for a panic bottom to form around 14,000 levels which should be a good opportunity,” he says during an interview with Moneycontrol.
But, investors can focus on themes like electric vehicle (EV) ecosystem from Auto space, high beta large-cap private banks space and can start accumulating some of the midcap IT counters which corrected by 40 – 50 percent, he says. Excerpts from the interview:
Do you think the Nifty50 has bottomed out after hitting a fresh 52-week low so far as chart patterns and sentiment indicators show?
In recent times, more often than not, investors have seen markets staging bigger rallies after slightly bigger corrections or a market crash kind of situation. Hence, it looks very tempting to consider buying the bigger correction especially when the Nifty is down by around 18 percent from the highs of 18,600 to 15,183 levels.
But we have a different opinion at this point in time.
In our opinion, which is backed by ample technical evidence, there are more downsides for the market. In the last January when we published our yearly outlook in these columns (Not so happy new year? Nifty may see multi-quarter correction of 20 percent in 2022) we shared our preferred view that Nifty should bottom out around 15,000 (plus/minus 500). But now chart patterns are hinting at more downsides. Hence, our worst-case scenario, based on current’s situation, is somewhere between 13,950 and 13,500 levels.
So, we are not buyers at these levels but wait for a panic bottom to form around 14,000 levels which should be a good opportunity.
Having said this, the Nifty may stage a pullback rally as long as it sustains above 15,183 levels. In fact, in the last 9 months of correction, we have seen three sustainable pullback rallies which lasted for around 4 weeks. A similar pullback cannot be ruled out from the current levels. More strength for the pullback can be expected if the index manages a close above 16,170 levels whereas a close below 15,183 shall accelerate the downward momentum.
The Nifty Auto index has seen a formation of Higher High and Higher Low since March lows. Also it gained 20 percent since. So what are your thoughts and do you expect more run-up in the space?
Technically, the Auto index, at this juncture, looks good as it is just 5-6 percent away from its lifetime high which is at 12,139 registered in November 2021. However, around those levels, it formed a Double Top formation with another life high being made in December 2017.
Moreover, multiple short-term tops are present on weekly charts between 11,680 and 12,100 levels. Therefore, high conviction buying opportunities will not emerge unless this index sustains above 12,100 levels. Nevertheless, positional traders with high risk-taking ability can focus on individual scrips which are already trading in uncharted territories.
Do you think the metal index has seen enough correction after 35 percent fall from its 2022 high?
Metals is always a tricky. Suddenly we have seen 35 percent correction in this space especially when some market experts were projecting a super-cycle for metals. They witnessed violent moves in both the directions. Hence, if the cycle turns on the positive side some of them can prove to be better investments. If we have to select something then we prefer largecaps from steel and aluminium space.
The Nifty IT index is the biggest loser this year. Are we done with correction?
If a 10 percent correction is pending in the main indices like Nifty then obviously IT will also participate in that. Nevertheless, it looks like an investment opportunity as largecaps corrected by 30 percent whereas midcap IT is down between 40 – 50 percent. Selectively one can consider ‘planned averaging’ in some of the blue-chip names from this space.
The Indian currency is hitting new lows. Where do you see the bottom for it?
For quite some time we are of the view that INR should weaken towards 80 against US dollar. That seems to be the realistic target where we expect it to bottom out between 80-82 levels. Meanwhile, unless it closes below 77.36 levels a meaningful appreciation should not be expected.
What are top three stocks that look technically strong now and could give healthy returns in coming months?
At this stage of the market, we are not comfortable giving stock-specific recommendations as we believe that markets can correct by another 7-10 percent. Nevertheless, investors can focus on themes like electric vehicle (EV) ecosystem from Auto space, high beta largecap private banks space and can start accumulating some of the midcap IT counters which corrected by 40 – 50 percent.
Underperformers of the last leg of bull market should be avoided including midcap private banks.
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