The market collapsed in a dramatic fashion on the back of selling by both domestic and overseas institutions in the wake of a disappointing interim Budget. The Nifty was down 7.2 per cent, closing at 2,736 points while the Sensex lost 8.2 per cent to close at 8,843 points. The Defty lost 9.5 per cent with the rupee plunging to 49.85 to the dollar.
While volumes in the cash market were low, they rose in the derivatives market. Breadth was adverse with declines far outnumbering advances. The banking sector was hit hard with the Bank Nifty losing over 13.8 per cent. The broad BSE 500 was down 7.8 per cent. Trading outside the derivatives sector was of almost negligible volume.
Outlook: The outlook is clearly bearish and the market is likely to move down until it hits supports somewhere between 2,500-2,600. The down move broke a key support in the 2,850 region. That will act as a resistance on any up move. Volatility is likely to rise next week due to settlement considerations.
Rationale: The last couple of months have seen the market trade two ranges. The lower range is Nifty 2,500-2,850 and the higher, 2,850-3,150. Last week, the market broke the support of 2,850 and headed into the lower range. It’s liable to swing down until the lower end where there is support between 2,500-2,650. Be prepared for at least one session of short-covering where 2,850 will be a resistance.
Counter-view: An upwards break and a close above 2,850 would destroy the downtrend. This looks unlikely but if it does happen, the market would trade up till at least 3,000. The lack of volumes in the cash market in the past month makes it quite sensitive to larger infusions that could result during settlement week.
Bulls & Bears: The landscape consisted of bearish counters with the odd winner scattered amidst many losers. The downtrend in the financial sector had the biggest effect on the market. Most banks slid and several such as Axis Bank, Canara Bank and ICICI Bank looked set to test their respective lows of 2008.
The IT sector also did badly with the CNXIT down by 5.9 per cent. Key stocks such as Infosys and the ever-volatile Educomp looked set to drop further. However Tech Mahindra saw some institutional buying. Most other sectors did badly.
The few gains that appeared came across three sectors that probably benefited from short-covering. Automobiles and real estate have been among the worst performers of this bear market but both sectors saw some price stabilisation and bottoming formations last week.
Mahindra looked like a decent pick, for instance. Pharmaceuticals saw some selective buying in Matrix Labs. Lupin also seems promising.
MICRO TECHNICALS
ABB
Current Price: Rs 399
Target Price: NA
The stock has seen buying after hitting a new low of Rs 365, dropping from Rs 445 levels on last Monday. It is likely to see a pullback till around the Rs 430 on what appears to be a strong trend of short covering. Keep a stop at Rs 390 and go long.
AXIS BANK
Current Price: Rs 373
Target Price: Rs 350
The stock has broken support at Rs 375 and it is set to fall further. The target would be around Rs 350-Rs 355. Keep a stop at Rs 380 and go short. Partially cover below Rs 355. If it closes below Rs 350, it could fall further to Rs 330 mark.
DR REDDY'S
Current Price: Rs 395
Target Price: Rs 420
The stock shows signs of a bottoming formation. It could be due for a pullback till the Rs 420 level with some resistance at around Rs 410. Keep a stop at Rs 390 and go long. Start covering above Rs 410.
MARUTI SUZUKI
Current Price: Rs 630
Target Price: Rs 680
The stock is testing resistance around Rs 635-Rs 640. If it does close above Rs 640, it would have a target of about Rs 680. Keep a stop at Rs 615 and go long. Buy more if the stock closes above the Rs 640 level.
PURVANKARA
Current Price: Rs 37.3
Target Price: Rs 44
The stock appears to have hit good support. It has the potential to pull back till around Rs 44. On the other hand, if it closes below Rs 36, it is liable to collapse till the Rs 28 level. So it’s delicately poised. Keep a stop at Rs 36 and go long, booking profits at Rs 42 plus. If it closes below Rs 36, go short with a target of Rs 29.
