D-Street undergoing healthy bull market correction; 2 stocks with up to 18% return potential
We believe the corrective phase over the last two months has made the markets healthier and created good opportunities for investors to accumulate quality stocks with a long-term horizon.
Historically, within a bull market, corrections to the tune of 12-15 percent are considered as normal bull market corrections that provide long-term buying opportunities, Dharmesh Shah, AVP at ICICI Direct.com Research said in an exclusive interview with Moneycontrol’s Kshitij Anand.
The Nifty50 flirted with its 200-DEMA and 200-DMA for the week ended March 28. Although, the index managed to gain for the week, it slipped nearly 3 percent or above 250 points in the month of March. How is the Nifty looking on technical charts?
Yes, after nearly 11 percent decline from the top, Nifty has been flirting around a cluster of 200-DMA and 200-DEMA, indicating a breather.
However, in line with our view, the Nifty has maintained the rhythm of not correcting over four weeks in a row, as buying demand emerged near key value area of 9950 being confluence of the 38.2 percent retracement of the entire previous major rally of the CY17 from 7894 to 11171 is at 9920 coinciding with support trend line of falling channel (drawn adjoining February – March lows of 10303-10142 projected from February high of 10537), placed around 9950.
We believe the index is undergoing a healthy bull market correction. Historically, within a bull market, corrections to the tune of 12-15% are considered as normal bull market corrections that provide long-term buying opportunities.
Price wise, the Nifty has already corrected 11 percent from its lifetime high, equivalent to demonetization correction (12%) levels in magnitude.
Even the weekly RSI oscillator has taken support from demonetization low of 41 levels and weekly stochastic oscillator witnessed bullish crossover. Thus, we believe the index will hold the crucial support zone of 9900 in coming weeks.
What is your outlook for Nifty in April series? Do you see the index consolidating in a narrow range?
We believe the corrective phase over the last two months has made the markets healthier and created good opportunities for investors to accumulate quality stocks with a long-term horizon.
The larger degree price structure is still positive. We believe the Nifty has a key support base around 9800 - 9900 regions as the index absorbed major unprecedented events in the past while approaching 9900 levels.
Therefore, investors should use the current volatility in the markets to accumulate quality stocks in a staggered manner rather than waiting to catch the exact bottom.
The key thing to watch out for is a structural turnaround to occur with a faster retracement of the last falling segment as that would also confirm a potential structural reversal near key value area of 9900 and open the doors for extension of pullback towards 10470 in the coming month.
Else, Nifty would continue to consolidate in a broader range of 9900 – 10300 amid the stock specific action.
What is your call on smallcap and midcap stocks which underperformed in March? Should investors stay away or just book profits on rallies?
Similar to benchmark, the Nifty Small cap retraced 38.2 percent of last major uptrend while Nifty midcap retraced almost 35 percent.
However, we observed that the selling pressure was relatively decelerated during the last leg of decline, indicating that these indices have done with price wise correction and now enter into time-wise correction before taking any directional move.
At the same time, both of these indices are hovering near support zone of upward sloping long-term channel drawn adjoining lows of February-December 2016, which clearly indicates avoidance of profit booking (selling) at this level.
In fact, we will be looking out for faster retracement of the last leg of decline, as that would be the first indication of a trend reversal.
Capital Ways Investment Adviser
605, Industry House , AB road Indore (MP) 452001
info@capitalways.com
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