Nifty is clearly exhausted; time cycle shows correction overdue

The domestic equity market seems to be enjoying a seesaw ride, by taking cues from global tides. The entire globe was filled with terror with the escalation in the lira crisis amid fears of trade wars escalating into a full-blown crisis, led to a spiralling rupee along with the depreciation of other emerging market currencies across the world.

Indian indices tried their best to withstand the global onslaught and closed the week in the positive territory – commendable strength indeed.

With the earnings season almost at an end, it will mainly be the macros which will decide the fate of the Indian bourses, but the currency ghost will not die soon and it will keep the bulls on their toes.

Midcaps and smallcaps, which had been beaten down since the start of the year, are seeing some traction as mutual funds and other investors have started accumulating value picks. The fear and pessimism have created good opportunities in a few stocks for value investors. However, one must be cautious because the kind of volatility and valuations that the largecaps are witnessing is unprecedented.

An investor must cautiously go shopping on Dalal Street and not blindly pick up all the beaten down midcaps and smallcaps.

Events of the week
The rupee crossed the Rs 70 to the dollar mark this week ahead of the 72nd Independence Day. The Erdogan-Trump head-on collision created bloodbath in the markets, which caused the rupee to depreciate.

On the other hand, commodity prices witnessed huge blows, which led investors and traders to stick to defensive plays and take refuge in IT stocks. On the Q1FY19 earnings front, Sun Pharma stole the show with a stellar bottom line performance by reporting Rs 982 crore PAT this quarter compared with Rs 424 crore reported for the previous year. Cadila, Jain Irrigation, Balkrishna Industries, Tata Steel, Grasim and DHFL are a few other companies that showed robust growth in profits this quarter, which led to sectoral rallies. which was quite encouraging.

Technical Outlook
The Nifty50 seems to have exhausted its momentum in the near term. Time cycle suggests a sharp correction is overdue. The upward channel is acting as a strong resistance and it seems that the market will respect the same.

The oscillators have turned distinctly negative, suggesting loss of momentum on the upside. All long positions should be exited below 11,300 and shorts can be initiated below that level. No fresh trades are advisable unless the Nifty50 decisively breaches the 11,300 level. Till that time, hold all long positions with a stop loss at 11,300.

Expectations for the week
Markets are a function of liquidity; greed brings liquidity, but fear takes it away. Markets are not pricing in worsening scenario which in a way is rational, but not everyone is rational, especially politicians.

India cant be an island, in the integrated world order, no sooner do the global political leaders act irrationally, fear would rein in, thus choking liquidity and impacting all markets, including the Indian market.

But it is better to remain little optimistic and ride the wave so long as it lasts. There are imponderables, but sticking to quality stocks would be sensible. The recent correction in the HDFC Bank stock is a good opportunity to accumulate it. Indiabulls Realty looks ripe for a powerful rally once its buyback is over, which is in the last leg.

Pharma seems to have begun the bull market and taking a basket approach would be the best strategy. Lupin, Aurobindo, Cadila and Dr Reddys would be ideal options. With the tremendous inflow to the technology space in the previous week, it would be advisable to avoid fresh buys in this space.

Nifty50 closed the week at 11,470, up 0.36 per cent.

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