What are technical charts signalling?
The market setup is still indicating a consolidation. And when the indices get in a consolidation mode, it becomes extremely difficult to anticipate which side the markets would probably try and test and give a breakout or a breakdown.
Nifty has been grinding in the 400-500 point range, where the 17,800 mark has been fresh support for the index and 18,200-18,300 has been the resistance. Now, there is a similar case for the Bank Nifty as well.
When you look at the charts, many of the parameters still indicate that the markets are stuck in a range. The only positive is that even with this last week of consolidation, there were a lot of trading opportunities in many large-cap names. For example, did pretty well; HDFC managed to recover quite strongly; IT pack looked quite strong.
Even if the markets are consolidating, it is not as if that there is a dearth of opportunities. The markets are still providing a lot of opportunities for short-term traders.
We have seen consistent FII selling and they hold quite a few banks. How do you see the banks moving in the short to medium term?
The tone of FII selling is very much visible, with the kind of underperformance we are seeing in the banking names. The major weight of the underperformance of Bank Nifty comes across from the private sector banks. And FIIs are one of the majority holders of private sector banks.
So, of course, if there is selling by FIIs, then there is a consistent and persistent selling into these pockets. But one encouraging data point for the banking index is the retracement of the 50-day moving average, which again is a very important technical concept. It works very well for the indices and has actually happened for the Bank Nifty.
The banking stocks have struggled; PSU banks have managed to lead from the front on the upside, the private sector banks have underperformed but the mean reversion for the Bank Nifty has happened from 41,500 mark where the Bank Nifty was at the end of October or start of November. From those levels, the index has corrected approximately 4,000 points.
In that sense, the point-wise retracement of 10% has sort of been completed for the banking index. Going forward, maybe over the next one or two weeks, you may see the selling numbers from FIIs. If the selling abates a bit, you would probably see these private sector banks starting to outperform. But till the time we do not see those signals coming by, it is going to be difficult to anticipate when the turnaround could happen. Once the selling intensity drops for the private sector banks, I expect a strong short-covering rally in Bank Nifty. So one has to wait for those signals to come by; private sector banks hold the key.
