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  • Jimeet Modi

    CEO, Samco Securities & StockNote
    The founder & CEO of SAMCO Securities, StockNote and the Indian Trading League Company, Modi believes that price is the most important factor in investing. He is credited with developing the AIRM (TM), an approach to screening stocks and businesses in a scientific manner. His role model is Warren Buffett.

Mr Market is becoming boring, whipsaw correction under way

ET CONTRIBUTORS|
Updated: Apr 13, 2019, 10.50 AM IST
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Risk-2---Getty
Markets will continue to be lacklustre, although some of the corporate numbers will inject steroids to an otherwise dull market.

Highlights

  • Nifty50 is consolidating in the 11,600- 11,700 range and showing strength on every decline.
  • However, since the prices have broken the upward moving regression trend channels, the bullish impulse is over.
  • Prices will correct from here on, although the deteriorating prices may not be significant, time correction will be longer.
The domestic equity market is witnessing a whipsaw phase, which did not allow the bulls nor the bears to make any headway through the week. This is typically a corrective phase, which the market is undergoing after witnessing a strong rally from 10,600 right up to 11,800, which is now being corrected.

Statistically, similar corrections in the past have taken around a month’s time. Therefore, the current corrective phase has just begun and it should last till the middle of May. However, the undertone of the market will not be weak.

The amount of price correction would be difficult to estimate, but time-wise the market is likely to take its own sweet time till May to correct.

The earnings season will bring in some amount of volatility, but that too would be restricted to either intraday or at best till the next day before the impact settles down. Nonetheless, the undercurrent will be of the corrective nature and Indian bourses will continue to remain boring. Traders should ideally avoid analysing the market in the current phase, but instead analyse elections.

Event of the week

The US Department of Justice has finally booked five of India’s top pharma companies out of 18 global players in price cartelisation for selling pharma generics in the years 2012-17. One may recollect that companies like Sun Pharma and Aurobindo Pharma had their best run-up in prices as profits and revenues surged. For example, one of the companies had reported CAGR growth of 25 per cent in top line during this period, whereas currently pharma growth remain anaemic.

Potentially, the penalties can go up to a few $100 million, which currently the market has not priced in, but soon these companies will have to shell out the abnormal profits that they had made back to the US Government. Currently, there is no point betting on pharma companies till these cases are concluded.

Technical outlook

Nifty50 is consolidating in the 11,600- 11,700 range and showing strength on every decline. However, since the prices have broken the upward moving regression trend channels, the bullish impulse is over and prices will correct from here on, although the deteriorating prices may not be significant, time correction will be longer.

Buy on decline should be strategy for traders with proper stop losses in place. One should look to buy stocks trading near the lower price supports rather than buying into breakouts, because many false breakouts may be experienced in such times.

jimeet graph


Expectations for the week
Markets will continue to be lacklustre, although some of the corporate numbers will inject steroids to an otherwise dull market. The IT index has made a triple top, which suggests the prices are not going to rise in a hurry. Howsoever, earnings of the IT giants although slightly better than expected, will not move into new price territory given the high valuations and the high expectations built in.

Also, prices of metals such as aluminium and copper are likely to witness further pressure and, therefore, metal stocks should be avoided. Traders can initiate short bets.

Nifty 50 closed this week 0.19 per cent down at 11,643.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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