Nifty Bank brings in higher volumes for the exchange, and better trading opportunities for speculators, but if Nifty weeklies go, then it would deprive investors the opportunity to hedge against major events that pop up more frequently now than ever, says Anand James, Chief Market Strategist, Geojit Financial Services. Edited excerpts from a chat:
The sell-off seen last week has made investors nervous about directional trends in the near term. Do you see consolidation or more downfall ahead?
At least 75% of the stocks in the major indices like Nifty 500, Nifty 50, Nifty Bank, Midcap 150, Small cap 250 as well as F&O segment are trading below their respective 10-day SMA. Consumer durables, FMCG and metal index constituents so far have shown more resilience, but financials often seen as a proxy to directional moves, have cracked. While Nifty50 is now near its 200-day SMA, giving some hopes of a recovery swing sometime early next week, sustainability is doubted, given the fact that only 43% of broader market stocks as represented by Nifty 500 index are trading above the 50-day SMA, suggesting that the downtrend may have more legs.
Following Sebi’s new regulation, NSE is likely to discontinue all other weekly expiries besides Nifty Bank as it has higher volumes. What are your thoughts on which index has the potential to make more money – Nifty or Nifty Bank? Old-timers will miss Nifty if it is discontinued.That is hard to say, as the trading community approaches both these indices differently. Nifty is a broad market benchmark with a larger number of constituents when compared to Nifty Bank, and hence it is a more stable index convenient for hedge plays, volatility dispersion strategies, etc. On the other hand, Nifty Bank is more of a sectoral index, but is a darling of traders who prefer the lower lot size and higher volatility of the index, both of which enable multiple opportunities to get in and out of positions. Clearly, Nifty Bank brings in higher volumes for the exchange, and better trading opportunities for speculators, but if Nifty weeklies go, then it would deprive investors the opportunity to hedge against major events that pop up more frequently now than ever. Of course, the monthlies will continue, but they may carry a higher premium and may be less responsive to events unless they occur closer to expiry when implied volatility of options may be better.
How do you read the resilience shown by defensives like IT and pharma? Metal stocks also continue to gain amid positive news flow from China.
The resilience shown by Nifty IT was on the back of positivity seen by Infosys alone. Rest of the majors including TCS, HCL Tech, Wipro and LTIM saw selling pressure. As TCS and INFY will be coming out with their Q2 numbers next week, IT pack is moving into the week with 42% of the stocks witnessing short buildup on a WoW basis. Number of stocks trading above the 20DMA has come down to 20% this week from 50% last week. Meanwhile, even as Nifty is trading near its 50 DMA, 40% of Nifty IT constituents have already slipped below their respective 50 DMAs.
On the other hand, Nifty Pharma has been consistently gaining since May 2023 and the upside looks to be losing steam. Since May 2023, Nifty pharma saw around 30-32% upside twice followed by 7% correction and a similar 32% upside is now staring at a 7% correction. We have seen just around 3% correction from the top and another 4% dip should be expected. MACD in the weekly timeframe is turning lower and is closing in on a signal line crossover from above. On the F&O side, 82% of the stocks have either added shorts or saw Longs being unwound on a weekly basis. Expect stocks like Aurobindo Pharma, Biocon, Glenmark, Sun Pharma and Cipla to see some more declines.
In other words, the defensive plays are yet to get into action.
RIL was one of the biggest bluechip losers in the week. Do you see chances of a pullback rally?
The last time RIL went below 200 DMA was in 23rd October 2023, but only three days of negative close followed, such penetration, post which RIL has been on a sustained uptrend till the mid of 2024. But what is different now is that the breaks of 50 and 200 DMAs have happened within the span of a few days. This is pointing to a long term trend being broken now, making it difficult to expect an outright recovery. A peek into the option spectrum post September expiry shows that investors have continued to pile on to calls in preference to puts suggesting that they are still on a bargain buying spree. This exacerbates the potential for an even sharper fall, should RIL fall below 2720, the recent low, leading to a cascading effect.
Give us your top trading ideas for the week ahead.
JUSTDIAL (CMP – 1194)
View – Buy
Target – 1325
Stoploss – 1139
The stock has been on a corrective mode since August and seems to have found a base near the Supertrend value of 1150 from where a reversal in underway. The momentum indicator MACD has breached the signal line from below and it has recently broken above the declining trendline resistance of 1173 hinting at near term positivity. We expect the stock to move towards 1325 in the next few weeks. All longs may be protected with stoploss placed below 1139.
JKLAKSHMI (CMP – 780)
View – Buy
Target – 875
Stoploss – 748
The stock has been moving within a Wedge pattern since 2022 and this week it has bounced off the lower trendline support of the pattern. Also, the Stochastic Momentum histograms have shown weakness at lower level indicating possibility of a pull back. We expect the stock to move towards 875 in the next few weeks. All longs may be protected with stoploss placed below 748 levels.