Samay Shetti captures the mood of the Indian bourses in the month gone by
And here we are nearing another monthly expiry, on 27th May and Nifty back on its support of 15800 pts as on the 3rd expiry of the month on 19th May. Let us do a quick check on the movement of the markets over the month picking up where we left off.
April month closed at a flat on the level of 17245 pts, right on the 200 MA line on the day charts after an extremely volatile week following the third weekly expiry, playing jump rope with it. Following that, from the first day of May, the bear has been showing its strength, bringing Nifty 50 down by a good 1568 points over 20 trading sessions as of 19th May and closing the week calendar week with another spike on 16266 giving an indication of a possible reversal or fall continue its choppy behaviour it showed from 19th to 29th April.
The Triggers
The quarterly result season has been bringing in a lot of movements in the broader markets fueling the volatility. This coupled with skyrocketing inflation rates in the global markets, resulting in the strong hawkish stance of the central banks across the globe to control it. The Reserve Bank of India on the 4th of May increased the Repo Rate (Repurchasing Option Rate) by 40 Bases Points viz 4.4% and the CRR (Cash Reserve Ratio) by 50 Basis points viz 4.5% with the intent of absorbing the liquidity in the system and thus controls the inflation rates.
Other than that, the Rupee hitting an all time low and rapidly rising prices of commodities added to the margin pressure in various sectors. While the event that triggered this ripple effect by supply chain disruption, the Russia-Ukraine war itself has taken a back seat.
Sectoral View
Fast-moving Consumer Goods (FMCG) The FMCG sector has seen a rally since 12th May after seeing a straight decline due to the shortage of wheat and palm oil the news of ban on palm oil exports by Indonesia playing a major role in it. Being the sector that affects domestic consumers directly the government came in with measures to counter it like the move to ban exports of wheat from India to counter the demands, also the news of lifting of the ban by Indonesia added to the sentiments of purchase in the FMCG stocks. The rally covid levels of 300, the FMCG Index stands on a full recovery and a major resistance at the levels of 38600, 870 pts, viz 2.3% over its 200 MA line.
Other than ITC, Hindustan Uniliver, Adani Wilmar, Ruchi Soya, and Godfrey Philips have already taken a bounce from their supports, stocks like Tata Consumers, Godrej Cosumers and Nestle have reached are trading on their crucial supports whereas Britannia has given a good breakout as of 20th April.
A cautious view needs to be maintained in this sector as while a breakout can open space for the rally continuing, a reversal is also possible owing to global triggers.
Information Technology (IT)
The IT sector has been a major sector which has played a role in dragging the markets down, owing to the changing dynamics in the work culture, the attrition weaker results and lower margins owing to the incentives to counter the attrition, IT has continued to decline, since major breakdown the index giving on 18th April where it opened over 1600 pts. below its 200 MA and has been consistently trading below its 50 MA on day chart after the Death Cross on 25th April, in May itself the index has come down by 3400 pts, and is now approaching its last year’s consolidation level over 800 pts below the current level at 27500.
Investors must avoid buying this sector as after a breakdown these stocks are heading to its next support levels, buying opportunities will present itself only when it shows a considerable bounce from those levels. Major names like Infosys leading the dive, Wipro, TCS, HCL tech, LTTS are approaching its support. LTI, Persistent, BirlaSoft, KPIT tech are on their support. Mphasis, Mindtree are falling knives while Tata Elexi is on a straight rally approaching its resistance showing total defiance to the trend!
Real Estate
The realty sector, after seeing a straight decline of 16.5% since the beginning of May series, has been consolidating on its support levels for the last week. A breakout can be expected if the index crosses the level of 410 pts and can open up investment opportunities, it currently trades at 398.
In this sector, stocks like DLF, Godrej Properties, Prestige, Sobha, Kolte Patil, GMR Infra, and LT are all trading at their support zones at very attractive levels. However, buying is recommended only on a breakout in these shares as they are subject to the hawkish stance of the RBI.
Auto
After a fall of nearly 12% from 11288 pts on 28th April, the auto sector has seen a sharp reversal of 7.1% from its low of 10100, currently trading at 10900. Over the last week, Auto stocks have shown interesting moves and are now at congestion levels near their resistances. In this space, stocks like Eicher Motors are at very attractive level trading above its 200 MA, TVS Motors though trading over it is showing an indication of reversal from its high while Hero Motocorp and Tata Motors are approaching 200 MA levels and Maruti Suzuki is in its consolidation zone. Short term investment in these shares is now possible as the risk reward ratio is favourable, but must only be done with a strict stop loss.
Banks
Bank Nifty which goes in tandem with Nifty 50 joined the dive from April 5th and gradually reached its low of 33000 and has given a bounce of 4% from there. Owing to the correction, most of the banking stocks, both PSU and Private Sector are now in a very attractive zone in terms of long term as well as short term investments.
The risk reward ratio in the stocks is very favourable, to name a few, the HDFC twins are trading at their lows and a crucial support zones, Axis bank gave a strong indication of a breakout on 20th April. Banks like SBI, Indusind, Canara bank, RBL Bank and Bank of India are trading on their support zones while IDFC First; Bandhan Bank and PNB have been in a gradual downtrend with low volumes.
Sugar
These sector has seen a good move in the last week’s trading sessions, seeing steep recent corrections after ethanol play rally, stocks like Dwarkesh Sugars, Balrampur Chini, Dalmia Sugar, Mawana Sugars, EID Perry, Awadh Sugar have taken a bounce from their lows, while Dhampur Sugar, KPR Mills are still continuing their downtrend.
The view in this sector would be cautious and buying possibility must only be explored in the stocks that have already shown a reversal from its lows with a short term view.
Ending Note
After coming down from 18100, Nifty just retested the 15800 levels on the third expiry of May, this factor is commendable as the Indian markets have seen massive volumes of exits in position by the FIIs at a point even touching the levels of covid low, but the Indian markets stood resolute on its levels backed by DIIs and Retail Investors. However, with every retest, a support gets weakened and chances of a Breakout or Breakdown increases just like the chances of a hit increases after every blank fired in a Russian Roulette (Or Gabbar’s Pistol).In these kind of markets, for investors the best way to go about is to invest their capital in lot sizes of 10% in the sectors of their choosing on the stocks near their strong supports and those who have given a strong breakout over their resistances with a strict stop loss only.
Reader discretion and research is suggested before investing in any stocks based on the above insights. This publication does not promote any stocks or companies and shall not be held responsible for any action of the readers.
The writer is a Technical Analyst and Investment Consultant. Email: samaysshetti@gmail.com
