Settlement week is likely to see a scramble with the market swinging between 2,500-2,850.
The market saw a steadily declining trend through last week with the Nifty ending down 4.15 per cent at 2,693 points after hitting a low of 2,500. The Sensex was off by over 5 per cent, closing at 8,915 points. The Defty did even worse losing 5.84 per cent as the rupee plunged to a historic low.
Breadth signals were poor with advances completely outnumbered by declines. Volumes were poor to average through the week. Midcaps and smaller stocks did worse than the pivotals with the Junior down 12 per cent while the Midcap-50 lost 9.7 per cent and the BSE 500 went down 6.6 per cent. The FIIs were continuous heavy sellers and domestic institutions were also net sellers.
Outlook: Settlement week is likely to see a scramble with the market swinging between 2,500-2,850 and large intra-day volatility. If the support at 2,500-2,550, which held through several tests this week, is broken, the downside target could be 2,250.
Rationale: If the FIIs and domestic institutions continue to be net sellers in tandem, the settlement could be grim with a new set of 2008 lows registered. However, there is a good chance that the FIIs will reverse direction, at least temporarily. One big session of short-covering could pull the market back to 2,800-plus. Outside the F&O universe, the downtrend is likely to continue.
Counter-view: Much of the selling has been driven by the FIIs need to meet redemptions. If that pressure starts easing off, the market could find a base at current levels. The supports at 2,500-2,550 look quite quite firm.
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Bulls and Bears: Banks, especially private banks, took a hammering but there was some sort of short-covering on Friday. Real estate also saw widespread selling. Stocks such as Axis, ICICI, DLF, Unitech, Parasvnath, HDIL, will continue to draw massive volumes and may see more selling pressure that reverses only on Wednesday. However, PSU banks like SBI, BOI and Bank of Baroda did well.
Apart from that, the biggest losers continued to be stocks that were erstwhile FII favourites. The IT sector provided some support as the rupee weakened with TCS and Infosys both making comebacks. But there were no apparent havens. Next week, the trader will have to stick within the F&O universe and hope to find stocks where short-covering could break the downtrend.
As it happens, there are quite a few scrips where short-covering is already in evidence. Engineering stocks like ABB, Bhel, L&T, metal stocks like Sail, Hindalco and Sterlite, and telecom majors such as Airtel and RComm look to be turning around on short covering. Other potential gainers include Cipla, HDFC, IVRC NTPC, ONGC, etc. But these are all short-term positions.
MICRO TECHNICALS
AXIS BANK
Current Price: Rs 411.5
Target Price: Rs 375/Rs 450 (downside/upside)
The stock has a downside till around the Rs 375 level and, as and when, there is a burst of short covering, it could rise again till around Rs 450. Keep a stop at Rs 420 and go short. Start covering below Rs 385. If the stock breaks the Rs 420 level, go long with a target of Rs 450 and a stop at Rs 415.
DLF
Current Price: Rs 198.25
Target Price: Rs 170
The stock is seeing heavy selling and it has dropped from Rs 300 on high volumes. There is a downside till around the Rs 170 mark. Keep a stop at Rs 210 and go short. Cover at Rs 170. DLF is already at historic low levels and it's quite likely that it will fall further post-settlement.
LARSEN & TOUBRO
Current Price: Rs 757
Target Price: Rs 800
The stock has risen from an intra-day low of Rs 700 on the basis of short covering and what appears to be investment buying. It has the potential to move till Rs 800 before it runs into resistance. Keep a stop at Rs 745 and go long.
NTPC
Current Price: Rs 150.5
Target Price: Rs 170
The stock has jumped on massive volumes but it will run into resistance just above the current levels. If it closes above Rs 153, it could have an upside target of Rs 170. Keep a stop at Rs 145 and go long. Increase the position if it closes above Rs 153.