The weakening euro has strengthened the dollar, even against the rupee, which has further jolted the Indian indices. Technical studies indicate that the dollar is bound to rise further, which could escalate and exacerbate the weakness in stocks. The short-term picture is negative, with the Nifty currently in a downtrend and the market creating progressively lower tops and bottoms. For a sustainable respite, this sequence needs to be reversed, but there doesn't seem to be any quick-fix remedy.
The daily moving average convergence divergence (MACD) has remained in the selling mode (it gave a crossover sell signal on 8 April) and is nowhere close to a 'buy' (it has actually slipped below the equilibrium line), which reiterates the earlier observation that the correction hasn't run its course and a further downside may be on the cards.
The Nifty's fall to the anticipated level of 5,032 may lead to an unsustainable corrective bounce, probably to the 5,188–5,224 level. However, unless there is a sustainable closing above the 5,330 level, no major upside seems to be on the horizon. The Nifty's support levels are at 5,080, 5,050, 5,005, 4,950, 4,920 and 4,875, while it faces resistance at 5,155, 5,224, 5,274, 5,303, 5,330, 5,410 and 5,455. If we consider a retracement of 50 per cent of the rise, it would come to the 5,032 level (the Nifty has already done this), while a 62 per cent retracement would indicate a fall to 4,952.
A sector-wise analysis based on technical parameters indicates that the BSE Bankex, despite being vulnerable to a correction, has shown significant resilience. Some banks, such as the Bank of Baroda, Canara Bank and Punjab National Bank, have posted all-time highs, indicating their penchant for outperformance and making them prime candidates for trading buys.
The BSE Healthcare Index has shown amazing alacrity in terms of outperformance and is posting alltime highs. Outstanding mediumterm investment opportunities are being offered by Cipla, Divi's Labs and Ranbaxy. Traders could also consider Sun Pharma stocks, though medium-term investors should avoid doing so.
The BSE Auto Index has been stagnant for the past eight weeks, but selective outperformance (Ashok Leyland has posted an alltime high) remains a distinct feature. The intra-sectoral corrections have thrown up outstanding investment opportunities, including those in Bajaj Auto, Bosch and Maruti Suzuki. In the fourth quarter, Maruti Suzuki's stock underperformed due to concerns about market share erosion and increase in commodity prices. However, rise in employment rates and salary hikes may lead to greater demand for cars, ensuring that the stock does well in the next 6-12 months. Considering its strong balance sheet and free cash flow, the stock should trade at better valuations. Any further correction is an opportunity to buy the stock.
The markets are under pressure and the weekly averages may go down further, with the Nifty likely to decline to 4,920–4,950. However, selective outperformance is expected to continue in some sectors. So, wait for the market to stabilise before you go bargain hunting.
Hemen Kapadia is CEO of Chart Pundit, a Mumbai-based technical analysis firm.
