Possibility of further downside in Nifty seen towards 16800-16600: Mehul Kothari of AnandRathi

In a worst-case scenario, we expect the index to settle down somewhere near to 16100 which is the placement of 200 DSMA, Mehul Kothari, AVP – Technical Research at AnandRathi – said in an interview with Zeebiz’s Kshitij Anand. Edited excerpts: 

Q) Markets closed the week with a freaky Friday. What led to the price action in the week gone by?

A) It was a nightmarish week for the bulls on the D – Street were in the benchmark indices saw one of the biggest falls of this calendar year (the Highest was in Jan 2021 where NIFTY corrected by 5%).

It was very much in line with our expectation since the breakdown in the Nifty50 below 17800 was a crystal-clear sign of a temporary top.

The index Nifty tumbled more than 4 per cent during the week went by to retest 17K mark. Yet again the markets were irked by worries over rising cases of COVID 19 (Worldwide) and fear of new variant which could be more harmful.

Also, the lockdown news of a few nations added fuel to the selloff. 

Q) What does the data for the November expiry tell you about the December series? Where do you Nifty and NiftyBank headed in the new series?

A) The rollover data for the November series was contradictory to what we saw during the first session of the series.

The rollover data had no indication of heavy shorts apart for some in the NIFTY BANK index. Whatever happened was all of a sudden due to the news and concern about the new variant of the COVID 19 virus.

Technically, the overall target for the Head and Shoulder pattern breakdown in the Nifty is somewhere near to 16800 – 16600. Thus, there is a possibility of further downside from here on.

In a worst-case scenario, we expect the index to settle down somewhere near to 16100 which is the placement of 200 DSMA.

On the upside, only a move above 17400 would reverse the trend. At this point in time the volatility index, VIX has confirmed a range breakout above 20 mark.

If it sustains here then it might bring more volatility in the coming week. Anything above 25 in VIX could be further precarious.

With regards to the Nifty Bank index, 35000 – 35000 could be a very decisive level for the index since that is a zone where 200 DSMA is placed and there any multiple supports.

Bulls would be hopeful that the fall might get arrested there. A breach of 35000 would reinforce the bears to drag the index much lower. On the contrary, the upside would resume only above the 38000 mark.

Q) Sectorally, auto, PSU banks stocks took the beating. They were one of the top sectoral losers in the week gone by. What led to the price action?

A) As mentioned above the price action is purely sentimental and is derived by a fear of another lockdown due to the rising COVID cases.

Specifically, Auto and PSU Banks were the last to recover or rally in during the past few months and that indicated some skepticism in them.

As a result, there were the one to take most of the beatings.

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Q) Unlock themes such hotels, leisure, travel, cinema shares felt the heat. Do you think these sectors will remain under pressure in the coming week?

A) Although COVID impacts the entire economy, but the above-mentioned sectors are the ones that gets impacted the most.

Recently, they got a new life and started cruising higher but yet again they were under serious selling pressure.

In the coming week too, they might continue to take the beating unless there is any clarification word wide regarding the new strain of virus and also the number of rising cases in EUROPE and USA would keep the sector in panic mode.

Q) What should investors follow – buy on dip or sell on rally strategy?

A) If we remove the COVID factor then India remains one of the strongest markets for the coming few years. Thus, the knee jerk reaction seems to be temporary.

Off course the magnitude cannot be assessed in terms of which level the correction will stop but we believe that this is the time which investors were waiting for since many months.

For traders, it will be a different ball game and they might have to be very quick in booking profits since the volatility could spike further.

Markets might correct more and enter some time-wise corrective phase too, but we believe investors should remain calm and focused if they are willing to bet for a higher time frame.

Q) Your top 3-5 trading ideas for the December series?

A) Here is a list of top trading ideas -

Britannia: Buy on dips| LTP: Rs 3543| Stop Loss: Rs 3380| Target Rs 3800| Upside 7%

Till the time there is uncertainty in the market, defensive play can be a better option. The stock of Britannia Industries is hovering near its 200-Days SMA support and that support coincides with the ICHIMOKU cloud on the weekly scale.

Thus, the downside from here seems to be marginal. Traders can buy the stock on dips between 3550 – 3500 with a stop loss of 3380 for the upside target of 3800 in the next 3 – 4 weeks

Cadila Healthcare: Buy on dips| LTP: Rs 473| Stop Loss: Rs 420| Target: Rs 530| Upside 12%

Cadila too is a pick from defensive pack i.e. pharma. The stock has been in a corrective mode since quite some time and has confirmed a reversal on the lower degree chart.

The risk-to-reward ratio looks lucrative to go long. Traders can buy the stock on dips between 470 – 460 with a stop loss of 420 for upside target of 530 in the next 3 – 4 weeks

HDFC Bank: Buy on dips| LTP: Rs 1490| Stop Loss: Rs 1410| Target Rs 1600| Upside 7%

We are choosing HDFC Bank as the third stock for a scenario where things start settling down. In that case HDFC Bank could give a decent pullback since it is trading near strong support.

Traders can buy the stock on dips between 1490 - 1480 with a stop loss of 1410 for upside target of 1600 in the next 3 – 4 weeks

Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.