Will bulls make a comeback post Budget after last week's carnage? Anand James decodes history

“We have slipped over 1,400 points from the record peak and are at 3 Standard Deviation (SD) boundary, which suggests that an end to downtrend is nearing,” says Anand James, Chief Market Strategist at Geojit Financial Services.

In an interview with ETMarkets, James said: “Nifty PCR (put call ratio) is at 0.67 after Friday’s carnage, and incidentally, the last time we had negative close and sub 1 PCR ahead of Budget, we saw a 4% gain in the 3 days post Budget,” Edited excerpts:

Nifty50 slipped below crucial support levels down over 2% and that too ahead of the Budget 2023. What led to the price action?
What began as measured slippage towards key supports, amidst Budget induced caution, evolved into a broad-based meltdown, after the Hindenburg report on Adani group spread panic across board.

Even though global cues were mostly positive, why is there a sudden panic selloff? FIIs have pulled out more than Rs 20,000 cr from the cash segment so far in January 2023. What is leading to a large selloff on D-St?
Global cues have not been entirely positive, one must say. Rate hike fears have lingered, while US markets have struggled, except for a few days here and there, including Thursday, whose vibes were not enough to clear the panic breakdown induced by Adani group stocks.

Further, FIIs interest has been lackluster as Indian stocks, despite fall from a record peak, were still fetching a reasonable premium over MSCI EM.

How should traders play the market in the Budget week? Which are the important levels one should track?
Though only 32% of Nifty50 stocks have slipped below their respective 200-DMA, 62% of the small-cap index stocks have fallen below this key metric, bringing Nifty’s 200-DMA of 17290 into the picture as near-term support.
Penetration of the same could lead to a multi-month bear market potentially aiming at 16500-15500.

However, Friday’s turn of events presents an opportunity in the near-term though.

Firstly, we have slipped over 1400 points from the record peak and are at a 3 Standard Deviation (SD) boundary, which suggests that an end to downtrend is nearing.

Secondly Nifty PCR (put call ratio) is at 0.67 after Friday’s carnage, and incidentally, the last time we had negative close and sub 1 PCR ahead of Budget, we saw a 4% gain in the 3 days post budget.

Based on Jan F&O expiry – what is your view on markets for the February series?
A whopping 40 crore contracts being traded on the expiry day, the majority being along index options, clearly points to a tug of war. This was evident as slippages that were threatening to evolve into a massive collapse, failed to clear even 17800 on the expiry day.

We see this as a standby posture by the traders before the budget clears the path for directional trades. A near similar role as well as roll cost when compared to last month when positivity was much higher, indicates the same.

Our relative rotation study shows that almost all of the sectors are now concentrated in the lagging quadrant which shows that sectors have largely remained stagnant compared to last month.

Banks, Oil, Financials, and Cement remained major draggers In January series while Autos, Metals, FMCG, and IT helped Nifty to cut losses. The IT and Auto index gained 4% on average in the January series while the rest dragged.

Smallcap stocks saw a significant short buildup when compared to large and midcap stocks ahead of the Union Budget. Things have changed drastically though post expiry.

What is your view on Adani group stocks which were down in double digits in the week gone by? How should one play the Adani theme – buy the dip, sell the panic or hold for a long-term view?
Towards last week’s close, the word going around in social media was that Adani group stocks were rendered B.A.D. supposed to be an acronym for “Buy At Dips”. We however feel that this is an evolving story.

Sectorally, Oil & Gas, PSU Bank saw over 5% cut. What led to the price action?
Reliance Industries led the decline in Oil & Gas stocks this week followed by Adani Total Gas (ATGL) both having 62% and 15.5% weightage in BSE Oil & Gas index respectively.

PSU Banks had the worst week since early December 2022, as traders gauged the fallout of its exposure to Adani group cos.

Apart from Adani Group stocks – Dixon Tech fell more than 20%. What should investors do?
Dixon technologies has been on a decline since December 2022 and the fall accelerated this week post the earnings announcement which missed street expectations and the management cutting their FY23 revenue guidance.

The recent fall has brought the stock close to the 61.8% Fibonacci retracement level of 2600 (July 2019 low and Oct 2021 high) which may offer a base for the stock to witness a bounce back.

However, if it fails to sustain above 2600 and stage a recovery, then we could be staring at Rs.1000 fall in the stock price towards 1700-1650 levels.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)