We had a scary Monday and since then we saw a steady rebound coming in. Is the rebound enough for us to not test Monday’s lows of 14,320?
We saw more of a repel trade or a repair mode in the second half of the week. The Monday selloff put in quite a dent into the indices. If you look at the momentum, there is hardly any major build up of open interest, except for Thursday when the markets opened after a one-day holiday. You saw a jump in the open interest on the Bank Nifty but other than that, there is hardly any major position sizing that has built up into the indices, which means that the market participants are expecting that the index could remain more or less in a range.
More importantly, if you look at the charts, Nifty and Bank Nifty have failed to break past that gap down, which was created post the Monday selling and that has really hurt the sentiments for the indices. Even a three-day recovery which we saw was not able to close that gap quite strongly. So that is one of the reasons why I believe the markets went into defensive mode with pharma doing pretty well and a couple of individual pockets or stocks and sectors doing pretty well.
For the index to now come back quite strongly, we need two important points. One of them is the breakout of this gap resistance, which is 14,800 on the Nifty as well as 32,400 to 32,500 on the Bank Nifty and more importantly, the resurgence of the banking stocks, both in terms of the open interest coming back quite strongly. If both these boxes are ticked off, then I believe there could be more stronger recovery on the indices. Other than that, it could be more stock-specific, like we saw in the second half of this week.
As a trend, do you think pharma will continue to take the lead as it did in the week gone by?
Pharma stocks would continue to show signs of gains. Largecaps are doing exceedingly well. We have seen Cipla, Cadila,
and picking up pace. Divi’s Lab, Dr Reddy’s and so many of these stocks have managed to pick up from where they were two-three weeks back. It has been a good last three-four weeks for the pharma stocks and there is no reason why the pharma stocks momentum should abate.
It could probably trickle into the midcap names. That could be a much better way to get back into more of a momentum trade. But purely as a play of breakout for these stocks and the kind of chart patterns that these stocks were showing, it is a durable move that you are seeing on the upside. I believe pharma stocks’ near-term trend should last on the upside and individual stocks like Cadila,
, etc could offer 5% to 7% upside in the near term.
