Our strategy should be to hide ourselves in the defensive sector till the Nifty does not cross the all-time high level of 11,770.
In the past, the Nifty has a number of times witnessed a steep fall due to extreme sell-off because of unwarranted reasons. It is not new to market participants and instead of thinking and wasting time on what has happened, we should be focusing on the next strategy and learn from such falls and make the most of it.
Our observation has been that since the market has announced the GDP numbers (above 8.20 percent) it has been falling consistently. This is the best example of the famous quote, "Buy the rumour and Sell on the news".
In September so far, the Nifty has fallen 4.50 percent and the index heavyweights are down by nearly 10-12 percent, which is in tandem with the trend of the market.
However, we see that there is some serious damage while going through a stock-specific activity.
The lowest level of Friday is going to act as a major support level for the Nifty. It was the 50 percent level of the entire rise between 9,950 and 11,760.
We must give due weightage to the 50 percent retracement ratio and that is the major reason that we consider it to act as a trend decider level for the market in the future.
If we see increased volatility and further weakness below 10,865 on Monday then one more round of selling cannot be ruled out to levels that could either be 10,650 or 10,550.
Being in an uncertain market, instead of knowing what could be the next level we should try to understand what experts do during such market sell-offs.
Our strategy should be to hide ourselves in the defensive sector till the market does not cross the all-time high level of 11,770.
The reason — currently that the market is in an uncertain zone and due to a number of events which are lined up (US Fed meet/RBI meet and quarterly numbers) there could be increased volatility. These sectors trend higher during uncertainties.
While looking at the current statistics of GDP and the trend of the rupee, we suggest that one should look to add pharmaceuticals stocks over FMCG.
Technology stocks have already delivered eye washing returns in the past 12 months.
Taking a "Bottom Up" approach while selecting stocks from technology, and using a "Top Down" approach is advisable in pharmaceuticals space.
Technically, we like Sun Pharmaceutical with a final stop loss at Rs 550 and Dr Reddy’s with a stop loss at Rs 2,300 from the pharmaceutical space. On the higher side, we can expect 30 percent returns from current levels in both these stocks.
From the technology basket, we would stick to Wipro, which is entering into a multi-year breakout zone, keeping a stop loss for the same at Rs 300 on a closing basis.
Multi-year breakout formation in stocks generally offers hefty returns to investors. We expect Wipro to move to its all-time high of Rs 517 in the next 12 months.
MORE WILL UPDATE SOON!!
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