Markets fell for the third straight session on Thursday with all sectoral indices slipping into the red. The auto and metal indices fared worst. For the week, the Nifty and Sensex ended close to 2 percent lower.
The Nifty fell below both the 20 as well as the 50-day moving average. The Nifty Bank is down 10 percent from record highs.
So, the big question is whether or not the bulls are eyeing a chance next week? FIIs have sold over Rs 40,000 crore from the start of October and the dollar index is closer to the 96 mark. Most of the global indices are near record highs. So, will India go ahead and do a catch-up act?
To discuss the week gone by and the market outlook for the coming week, CNBC-TV18 caught up with Aditya Narain, Head-Research, Institutional Equities, Edelweiss Securities, and Jai Bala of Cashthechaos.com.
Narain said it was a tough week and sort of a continuation of what was seen in the last one or two weeks. But it wasn’t a surprise because the extent of outperformance that India had seen, meant that the market would witness a period of consolidation or a period where it catches up with the rest of the markets.
Interestingly, the last couple of weeks witnessed a couple of bumper listings, and a couple of weak listings. “At some level, that's a good sign because it is telling you that you have both sides of the market. There is a little bit of a struggle going on, and as long as you have that, I don't think the market is going to be necessarily very decisive on either side.”
Also given that there has been concern that India is probably reasonably overvalued, the risk that you see something very dramatic on the downside tends to ease a little bit, said Narain.
Talking about their bets, Narain said, “What we have got as our overweights, which is where we have comfort given how stocks have performed, is really three spaces - one is the IT space, which hasn't done particularly well in the last couple of weeks, but we just think the underlying demand is so significant, that business support provides you a lot of cushion."
"The second is banks. Part of their appeal is that they have underperformed a lot from a valuation perspective. But most importantly, one is beginning to see the start of a little bit of credit growth, plus asset quality support. So, basically quality improvement and growth coming back and valuations being reasonable. So, when you have that mix, it is a good place to be positioned because you can catch the upside of the downsides and tend to be a little protected," said Narain.
According to Narain, the third space where they are comfortable is the industrial space. There's been a good sense of order flow and "that is another place where we would tend to find a reasonable amount of comfort", he added.
“So, these are the areas where we would really be positioned not that they will necessarily move dramatically over the near term on the upside, but the mix between leverage to the upside and protection from the downside is where it tends to lie," said Narain.
According to Jai Bala, the Nifty seems to be on a correction from 17,450 to 17,325, and the pace of the move is signalling that this is possibly just a correction. "We don't want to see the markets drop below 17,300, and as long as the market doesn't go to beyond that this is still a correction," Jai Bala said.
The Bank Nifty is experiencing weakness from underperformance by Axis Bank and HDFC Bank, while ICICI Bank is managing to do well and SBI is managing to doing okay. "So these two are compensating for the weakness in the sector. As long as the Bank Nifty manages to hold about 34,900, there is nothing to put the bulls in an uncomfortable spot. So, we want to see these markers kept up for the markets for the coming week," said Jai Bala.
Watch the accompanying video for the full discussion