A break below 17,000 could take Nifty50 towards 16,800-16,650: Anand James

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Penetration of 17,000, though less favoured, will bring 16,000 into the picture, with interim supports seen at 16,800 and 16,650,” says Anand James, Chief Market Strategist at Geojit Financial Services.

In an interview with ETMarkets, James said: The base scenario sees a reversal from 17,000, which can also set off, should Monday close above 17,560. Edited excerpts:

Sensex and Nifty50 witnessed over a 1% fall (as of Thursday) amid uncertainty around the US Fed. What led to the price action?
In addition to a 75 bps hike, the US Fed’s commentary has upped market expectations of a peak rate of 4.4% by the end of the year, and 4.6% by 2023, much higher than previous expectations, prompting traders to take money off the table, especially with RBI MPC also scheduled on 30th this month.

Where do you see Nifty50 headed in the coming week which is also an expiry week? Important levels which one should watch out for?
With Friday’s close just 1.7% above the 200-Day SMA at 17,000, the downside pull is very high. The base case scenario sees a reversal from 17,000, which can also set off, should Monday close above 17,560.

However, penetration of 17,000, though less favoured, will bring 16,000 into the picture, with interim supports seen at 16,800 and 16,650.

The rupee tumbled to a fresh low – where do you see currency headed in the near term? Do you see further weakness?
With the US 10-year as well as the dollar index in a sharp upside trajectory, the rupee is headed for more weakness. Ideally, USDINR aims for 81.7 initially and more, having broken out of a 3-month consolidation pattern.

But to the end, the dollar’s strength is now riding on a hawkish Fed dot plot, the surprise to the dollar index is on the downside. This is the forecasting risk that the rupee faces.

We will look for a slippage below 80.7 in the next few days for invalidation of upside expectations. Meanwhile, the market already expects RBI to move rates higher by up to 50 bps, further rate hike expectations are much lower given the tailwinds of cheap Russian oil previously bought, as well as the present slippage in oil below 90.

The risk to this projection stems from renewed trouble along the Russia-Ukraine corridor.

The dollar index hit a fresh 20-year high above 111. Do you see this could turn out to be a worrying sign for Indian markets? What does history suggest?
Historically, the Indian stock market is inversely correlated to both the dollar as well as oil. However, the treatment is different.

While high oil prices impact the Indian economy directly, as we import more than 80% of our requirements, the dollar’s rise is more suggestive. It usually indicates a flight to safety.

It is also a question of capital cost for the foreign investors, on which we have been relying heavily until recently. However, this connection now stands weakened as domestic markets mature with the rise in participation from both retail, as well as, domestic institutions.

We have also recently seen the rise of the rouble as well as renminbi in international trade after the Russia-Ukraine standoff started. Secondly, with the West facing recessionary trends, there is an impetus on increasing investments in EMs like India, irrespective of the cost of capital.

However, the sharp trajectory that the US 10-year is on is certainly a worrying factor, but it stands to reason that this trajectory is projected from an extremely hawkish Fed dot plot, which is highly likely to weather some storms, as US mid-term elections approach.

Sectorally, FMCG stocks outperformed while realty stocks suffered the most. What led to the price action, and do you see a similar trend in the expiry week?
FPIs were net sellers in realty stocks to the tune of Rs 574 crore in the first fortnight of September which was 5 times of total selling in the last 3 months and the highest fortnightly selling since April.

Moreover, the S&P BSE Realty index had seen a MACD bullish exhaustion in weekly charts, leading to profit booking, which is likely to continue.

In the FMCG space, FPIs were net buyers of Rs 1997 crore in the first fortnight of September which was 30% of the total inflow seen since April 2022 and have remained consistent buyers in the sector since July 2022 pumping in close to Rs 10,000 crore which explains the uptick in the sector.

Also, the S&P BSE FMCG index has technically seen a PSAR breakout on daily charts along with MACD crossing above the signal line indicating bullishness.

Any 3-4 stocks recommendations for the October series?
Here are recommendations for the next 3-4 weeks:

Hindustan Oil Exploration Ltd: Buy| LTP Rs 139| Target Rs 150-155| Stop Loss Rs 132| Upside 11%
After the minor consolidation seen in July and Aug, the stock had broken below the consolidation support early this month. Currently, it has formed an inside bar Doji on daily charts along with MACD forest showing bearish exhaustion, hinting at an attempt to reverse.

We should probably be looking at the initial pattern formation, which is expected to lead to a reversal towards the 150-155 region in the near term. All longs may be protected with a stop loss placed below 132.

Affle India Ltd: Buy| LTP Rs 1271| Target Rs 1360| Stop Loss Rs 1240| Upside 7%
The stock has been moving within a trend channel since August and has recently bounced off the channel support of 1249 and is possibly moving towards the channel resistance of 1360.

The MACD forest on the daily chart is hinting at bearish exhaustion which supports our expectation of a bounce back in the near term.

Chemcon Specialty Chemicals: Buy| LTP Rs 446| Target Rs 500| Stop Loss Rs 417| Upside 12%
The reversal that started in June 2022 has been continuing. In the daily time frame, the stock has seen a PSAR breakout along with MACD exhaustion which backs our expectation of an upside towards 500 levels in the short term.

Also on the monthly time frame, the stock has seen a PSAR breakout confirming a short-term positive outlook for the stock.

Frist published in Economic Times

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