Short-term market weakness likely; defensive sectors poised to outperform: Rohit Srivastava

Synopsis

Rohit Srivastava suggests the recent market rally from early April might be ending, entering a corrective phase influenced by geopolitics and the upcoming FOMC meeting. While domestic liquidity is positive, Nifty's struggle to surpass 24,980, especially closing below 24,840, could lead to a fall towards 24,200.

"Though domestically, we have stepped up liquidity, which is the positive of it. So, in light of all that when we look at the charts, we are seeing the Nifty get past the 61-66% retracement of the most recent dip that we saw from 25,200 down to around 24,500," says Rohit Srivastava, Founder, Strike Money Analytics & Indiacharts.

Talk to us about the construct of the market. Right now, we are consolidating. Have we really discounted the entire Iran saga that is playing out? From here on, what is the way forward? What are you seeing on the charts and let me get your view on the sectors as well because Nifty IT that was outperforming, that has moderated today with Nifty Auto taking the lead.
Rohit Srivastava: So, it is an interesting setup. What has ended up happening is that the entire move that started from the bottom we saw in the first week of April, has probably come to an end. And what we are now seeing is a corrective phase. You can call it a correction to the rise, you can call it a consolidation, but a much needed pause before we can continue higher as the market has done a good catch up with whatever earnings growth we have seen for this quarter.

Now, of course, geopolitics is playing a role in the short term. There is also the FOMC meeting which will be coming up tonight, so it is a mix of all these things that are playing on the market's mind because to some extent you can discount geopolitics, but on the liquidity side the US may not definitely step in today, so that is going to be the main concern. Though domestically, we have stepped up liquidity, which is the positive of it. So, in light of all that when we look at the charts, we are seeing the Nifty get past the 61-66% retracement of the most recent dip that we saw from 25,200 down to around 24,500.

So, 66 is around 24,980. So, the view is that as long as we do not cross 24,980 and even more if today we are closing below 24,840, then we could be headed back to around 24,200, so that gives us another 600 points down at least from here. It could be more than that, but that is a minimum that we will probably go with on the Nifty itself. Now, with that if I switch to the Bank Nifty, similar levels would be 56,070 on the upside which is a resistance. We will watch if it breaks 55,380 and if it does, then it would open up a dip towards 53,500, so slightly negative in the short term over the next one to two weeks is what I am thinking. Things would improve after that. I do think the April bottom is a lasting bottom for the year ahead. But in the short term there is room for a further correction.

In this correction, which sectors will participate the most, where do you see the data build up not that great and which can actually contribute in the market decline?
Rohit Srivastava: So, typically, what happens in this phase is you do see a slight shift towards defensive sectors. I think partly the buying in IT was also based on that. So, you did see some buying in IT. I would also look at the pharma sector for a possible comeback in a weak market and lastly, of course, FMCG. So, it is like back to the defensives as far as the next one to two weeks are concerned. Now, eventually after that you want to be buying growth stocks again. So, this would only be a trade. And when you go back to growth, then at least it and FMCG are not in my wish list for the long term. But near-term because of the defensive market that is what would hold out better or even maybe give some positive return.

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