“Many of these largecap and midcap IT stocks have corrected by more than 20-25% from their recent swing highs. The concern for these stocks is two-pronged. These stocks are getting into a price-wise correction. And I believe that these stocks should get into a time-wise correction as well,” says independent market expert Kunal Bothra.
It has been a very-very volatile week even though India VIX has come off. We are seeing one-day upside, one-day downside. How do you read this entire mayhem?
It is a very difficult phase for the market because we have to grapple with two different types of volatility — one is the gap-up and gap-down, and the other is the intraday reversals which happen on the indices. In this regard, both bulls, as well as bears, are at the losing end as the choppiness is not leading to any major kind of a trend move.
It has been a very-very volatile week even though India VIX has come off. We are seeing one-day upside, one-day downside. How do you read this entire mayhem?
It is a very difficult phase for the market because we have to grapple with two different types of volatility — one is the gap-up and gap-down, and the other is the intraday reversals which happen on the indices. In this regard, both bulls, as well as bears, are at the losing end as the choppiness is not leading to any major kind of a trend move.
We were earlier trading in this 400-point band of 16,800 to 17,200. We managed to briefly break above the 17,200 mark but the last hour of selling on Friday brought the indices back below the 17,200 range. Now, in case of volatility in global markets, we could probably get into one more round of the range testing for the indices, way back below the 16800 mark. But if the global markets remain more stable, we could probably come back above the 17,200 level. The bigger concern for the market is the lack of sector participation on the upside. On the downside, you have IT which is clearly the weaker sector. But on the upside, you cannot pinpoint one single sector. That is the only major concern for the market and that is why we are not seeing the rises or rallies sustaining for the indices, as well as, for the overall market.
In midcap IT space, we saw numbers from the likes of Mphasis, Persistent, KPIT Tech. And all of these three counters actually surprised positively. We did see a positive reaction but overall for the week and for the month, Nifty IT has been the top loser. Should one use this correction as a buying opportunity or should one stay away?
My sense is that we could be in for more of a time correction in these IT stocks. I do not see any major bounce back. These stocks have fallen somewhere around 15-20% on an average in the last two months and when you look at the last three, four months of price pattern, the fall has been much sharper in these midcap IT names. So a bounce-back of 4-5% may not actually change the price trends for these stocks. It is just that when the indicators are such deeply oversold, you expect an immediate relief rally but eventually these bounce backs get sold into yet again.
One should play the midcap IT theme into two strategies. One, from a short term view, you can expect some mild bounces along the way of 3-4-5% on an average. But from a portfolio perspective, if these stocks bounce off another 5% from their recent swing lows, then that should be taken as an opportunity to become lighter in these stocks.
In terms of Wipro, what does the chart check suggest because the entire IT pack has been coming under pressure? was a stark underperformer given the 30% slide that we have seen already in the year.
Many of these largecap and midcap IT stocks have corrected by more than 20-25% from their recent swing highs. The concern for these stocks is two-pronged. These stocks are getting into a price-wise correction. And I believe that these stocks should get into a time-wise correction as well. Now when you see indicators deeply oversold on the weekly, monthly or on hourly timeframe charts, you would typically expect the stocks to bounce back immediately but it is not happening for the IT names which I believe could probably be an indicator that these stocks may get into a time-wise correction say for the next couple of months. So, one should not hurry and jump into these IT names just because these stocks are down 20-25%. Rather than that, have a staggered approach. Maybe buy 30% of 25% of your expected quantity and then keep on adding lower as the stocks correct by maybe another 5% or 10% on an average.
In terms of the stock picks for the coming week what are the key sectors or key stocks that you would want to point out?
So, till the time Nifty trades above the 17,000 mark, I would still be a bit more biased on the long side. So, I have two buy calls and the first one is Deepak Nitrite. The stock was relatively stronger in the last hour or so when the markets were going through a very sharp crack. I would expect the stock to outperform going forward. One can buy with Rs 2,500 as the target for , stop loss could be kept at the Rs 2,250 mark and could be revised on the downside. The second would be a buy on ITC. Again, it has proved to be more of a resilient stock. It has been trading around the Rs 260-odd mark for itself. I am expecting the stock to hold up this Rs 255 mark which could be a near term support. can also see some decent upside over the near term; buy with a target of Rs 275.
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