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By Vikas Jain Where are we: In the last five weeks, since August 2018 — after touching an all time high at 11,760 levels — the Indian equity markets have seen a vertical sell off.
The weakness in the markets intensified further post the breakdown of its 200 day average at 10,780 levels and macro concerns emanating from higher crude prices and with rupee deprecation to all time low against the US dollar.
Nifty shed its year to date (YTD) gains, trading 12% down from its 52- week high.
Except for IT sector, which is holding strong on back of rupee depreciation, all sectors have declined between 15% to 40% from their 52-week highs.
What is in store: We expect the Nifty to form a trading bottom in the current week and expect a strong pullback as there are multiple supports placed in range of 9,950-10,100 levels on multiple time frames .
Nifty is trading 8% away from its short-term DMA and historically it has always bounced back from these levels.
Upside will also be capped near to its 200 day average and a time-wise correction could set in for the next few weeks.
Any correction in crude oil prices and rupee would be an icing on the cake for the up-move.
The volatility index, India VIX closed at 20 levels, there is major resistance on the higher side near to 25 levels.
What could investors do: The Q2 results would start from the current week and it will provide more clarity in terms of FY19 earnings.
Among sectors we prefer pharma, consumer and private banks as they appear to be favourable at current levels.
Passive investors can consider investing in ETFs like NIFTYBEES and JUNIORBEES.
(The author is Senior research analyst, Reliance Securities.)
