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Sensex, Nifty near 2-month lows; exercise caution, prefer value over growth stocks

Calibrated buying on declines in small quantities in high quality stocks with preference for value over growth would be a good investment strategy.

With prospects of ease in inflation turning bleak and growth estimates seeing downgrades globally, investors are seen pulling out their investments. (Image: PEXELS)

By Rahul Shah

The Sensex and Nifty benchmark indices plunged as policymakers across the globe aggressively paddle on monetary policy tightening. The Sensex tanked 2225 points or 4% to close at 54,836 and the Nifty shed 690 points or 4% to close at 16,411. This was the benchmarks’ lowest level in two months. Record-high inflation levels, dented prospects of corporate profitability and the likelihood of contraction in economic growth continue to have a negative impact on the market. The single important factor roiling global equity markets is the reemergence of inflation as a major threat and Investors should remain calm in these turbulent times without taking aggressive positions. Calibrated buying on declines in small quantities in high quality stocks with preference for value over growth would be a good investment strategy.

US markets sank overnight on fears of aggressive measures that the Fed may take to curb inflation and subdued earnings. The Nasdaq posted its worst single-day fall since 2020, plunging 5 per cent at close. The Dow Jones lost 3% and the S&P 500 fell 3.50 per cent. Nasdaq fell to 18-month low and fell 24% just one year.

In the domestic factor, the Reserve Bank of India joined global central banks in raising interest rates as it hiked the key repo rate by 40 bps, triggering an over 2 per cent fall in the equity markets on Wednesday. A Reuters report said the surprise hike came as the central bank feared “shocker” inflation numbers for April. The move has severely dented investor confidence as borrowing costs are set to rise for producers and consumers alike, and liquidity of over Rs 80,000 crores will be drawn out of the banking system from the latter part of May, due to the 50 bps increase in CRR rates. US Dollar Index surged to 20-year high of above 104% and US 10-year bond yield spiked to 4-year high to above 3.07% with worries of economic slowdown in the US economy, the Federal Reserve raising rates, and a major selloff in US stock exchanges.

With prospects of ease in inflation turning bleak and growth estimates seeing downgrades globally, investors are seen pulling out their investments from riskier assets to relatively safer bonds. This is evident from the steep rise in bond yields both overseas and back home. The yield on the 10-year treasury in the US, for instance, rose to over 3 per cent on Thursday, hitting its highest level since 2018.

FIIs were net sellers of nearly $2 billion or Rs 12733 crore just four trading sessions while DIIs were net buyers worth Rs 8533 crore during the previous week.

SELL Cipla
target: Rs 880 | Stop loss: Rs 955

Cipla has given a breakdown on the daily scale and has been inching lower. It is making lower top and lower bottom indicating weakness in the trend and has closed below its 50 DEMA. RSI oscillator is also negatively placed on the daily and weekly scale. • Considering the current chart structure , we advise traders to sell the stock of a down move towards 880 with a stop loss at 952.

BUY Coal India
Target: Rs 200 | Stop loss: Rs 183

Coal India has taken support at the 50 DEMA placed near 183 and has formed a bullish candle on the daily scale with long lower shadow indicating buying interest from support zones. RSI oscillator is also positively placed on the daily and weekly scale.  Considering the current chart structure, we advise traders to buy the stock for an up move towards 200 with a stop loss of 183.

(Rahul Shah is a Senior Vice President, Group Advisory Leader-PCG, Broking & Distribution, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)

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