Thursday, August 18, 2011

EOD Analysis for 18th August 2011 and Outlook for 19th August 2011

Nifty yet again opened on a modest note but potential downfall was imminent with the way banks were badgered yet again. Absolutely no signs of short coverings from the bigger players and in fact even when some shorts were being covered, the bloodbath simply refused to stop. This is the longest losing streak of Banknifty in a single day and in 2 consecutive sessions, it has fallen by more than 600 points.

Indication for downside on the Nifty was confirmed with yesterday's heavy sell in Banknifty; however, it was only a matter of time as Banks got chopped further and the broader markets are simply under a lot of pressure especially given weak global cues. Today was the 4th consecutive close below 5092 levels; Friday syndrome has always haunted Nifty through out 2011 and just a couple of exceptions have marked green days that too on a positive note. Depending on margin calls tomorrow, it remains to be seen whether there is a positive trajectory or there is more mayhem to be witnessed on the bourses.

Banknifty went further below yesterdays indicated level of 9700 and unless banks start moving up, not much relief can be expected on Nifty. Upside for Nifty remains capped at 5092 on EOD basis even with the strongest whirl of short covering. There is no panic on the streets simply because retail investors have long forgotten the stock markets after the collapse from Diwali 2010 highs and are now simply waiting to be rewarded in future years. The collapse has been rapid and one can expect some upside to come in the next couple of weeks

Nifty has collapsed about 800 points from the high of July to the current low within 3 weeks and this correction will get rationalized to about 400 points from the low [or 450-500 points if Nifty tanks further]

It is time to shift preferences in the banking sector to mid cap banks as counters like SBI and ICICI have 2 problems

1 - SBI is having intrinsic problems with cost structure and management issues
2 - ICICI is notorious for exposure to high risk derivatives that may suddenly crop out of the blue.

Canara Bank, Corporation Bank, Vijaya Bank, IDBI Bank, HDFC etc are better counters to accumulate now in tranches for both short term upside and long term investments. VIX is still high and should cool down in a few more days. Low margin players should stay out of this market and even if one is a player with high margins, it is critical to take hedged positions in such a way that in case of an adverse trade, the net result is NPNL and capital is preserved.

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