Volatility may remain high

Deepak Singh Tanwar

The terrorist attack on the financial capital of the world had an expected impact on Asian markets and India was no exception. With the main trend being negative, the impact was much more and the Sensex lost 118 points on Wednesday. It touched a 21-month low of 2954 points.

If one were to look at the intra-day recovery, it was not very impressive. And whatever the Sensex gained, it was mainly on account of counters like ITC, Dr Reddy’s, Ranbaxy and Reliance. Among the non-index based counters, Wipro was an exception as it managed to show a positive close. It recovered its entire fall.

The undertone of the market is more than bearish and immediate revival appears unlikely especially if one were to consider the intra-day recovery. While bottom fishing may appear attractive, the force on the downside is very strong and one can wait for some more time to indulge in picking stocks. From the Sensex point of view, a strong base lies only at around 2800 points.

Even if a bounce occurs, sellers will definitely be seen at higher levels. While the overall market is under pressure, the position of IT counters is worse. Barring one or two, the performance of all the IT stocks is far from impressive and the trend is likely to continue in the near future.

Infosys, Digital Equipment, Zee Tele, Satyam Comp, NIIT, SSI, Global Tele, HFCL, HCL Tech showed a weak trend. A further fall on these counters is not ruled out.

Infosys, where the fall is relatively low, is expected to weaken further below Rs 3,135.

Wipro, however, is relatively better. The rally on Wednesday was impressive on this counter as it gained nearly 15 per cent from the day’s low. The stop-loss for long position should be Rs 1,300. The outlook will improve further above Rs 1,550.

Among the old economy, the outlook for stocks like SBI, Bhel, Tata Tea, Tisco, MTNL, RPL and Reliance continues to remain negative.
The domestic pharma stocks have shown a good intra-day rally which is a good sign.

The stop-loss for long position in Dr Reddy’s should be Rs 1,740 whereas the same in Ranbaxy should be Rs 590. As for Cipla, position will start weakening below Rs 1,200.

Overall, markets are expected to remain volatile and long position should still be avoided.

(The analyst does not hold any position in stocks mentioned in the article)