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The market does not look good. It has been on a weak footing. The foundation of what is happening right now was laid six months back. Many of the technical charts that we follow have been negative for a while now. The technical indicators have not been in sync with the price action but because the Nifty had such a great run on account of a handful of stocks, we never questioned the technical indicators till Nifty hit 12,300-12,400 levels.
In light of the developments of the past week, it does seem that this is not a plain vanilla correction. It is a short term downtrend wherein the markets will continue to make a series of lower tops and lower bottoms and this can continue for many weeks and maybe even many months.
The market participants are used to seeing indices correct or turn around to go back to making new highs. This might not happen right now because when you look at the momentum on the way down, and the volumes, some of the larger stocks are clocking in bad days. And this is an indication that there is a big shift happening.
The markets are also going through collateral damage given what is happening around the world. This is going to get a lot worse before it gets better. The first pointer to work with is the budget day low of around 11,620. You could see some stopover demand there but we believe that eventually this market is headed towards that zone of 11,300 to 11,350 and maybe even to 11,100 and this has been our working view for the last one month. All rallies will find a lot of resistance, so the upside is clearly capped to the 11,900 area. And because there are too many sectors participating on the way down, Bank Nifty which was an outperformer in the last couple of days is only now sitting up for the largest decline. We would not be surprised if Bank Nifty loses about 10 per cent from these levels.
What about capital goods and autos? We have seen quite a bearish trend building up in autos particularly. Do you see it worsening?
I would be more bearish on capital goods, the reason being in the good times when Nifty got close to levels of 12,400 level, the stocks from this sector did not participate. And now as the markets are going through a difficult phase, capital goods is clearly one of the biggest underperformers. Larsen & Toubro is a great example because it did absolutely nothing in the last three months. Many of the top capital good stocks are setting up for a much bigger breakdown that could lead to 10 per cent to 15 per cent downside for the index and for most of the stocks.
Autos, well they had a lovely run. They moved up 30 per cent from the lows of last August, September but the manner in which some of them have just come off in the last 10 days that does not look heartening at all. In this environment, the weak is getting weaker, and the cheap is getting cheaper and this trend will continue on for the next many weeks. We will have to really review in the last week of March but at least for the next four to six weeks, capital goods, FMCG, auto, metals, banking are a complete avoid and the only two spaces that we like are IT and healthcare. We believe one can hide is chemicals and insurance too. So, these four pockets will outperform but everything else in the market looks quite bleak.
What is your outlook specifically on the Nifty Bank in terms of important levels? Do you believe there is more correction in sight and what is the view on individual private sector bank stock as well as PSU banks?
In the banking space, for the last year, year and a half just one stock – HDFC Bank acted like Pied Piper. So, when this stock did well, the Bank Nifty did well and because the Bank Nifty did well it helped Nifty.
Some of these top-performing stocks of the last 18 months may witness some downside and if that were to happen, then the Bank Nifty will take a hit. We are working with an immediate target of about 29,700 which was around the budget day low, and once that gets violated we would not be surprised if Bank Nifty goes down to 28,900 and eventually 28,000.
A possible 2,000 point fall on the Bank Nifty is likely and some of the top names in the space, apart from ICICI Bank which has broken out of a 10-year consolidation, look weak.
PSU banking is in terrible shape; most stocks are making 52-week lows and there are no signs of bottoming out. We have recommended our subscribers to stay away from this space because you really do not know where this is going to end in terms of its downtrend.
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