Yellen whistle cools down the bull party; more correction lies ahead

By Jimeet Modi

The domestic market opened the week with a negative bias but rose 150 points midway through the week, only to later succumb to selling pressure at higher levels. The upward momentum got interrupted by US Fed commentary of weak global growth prospects for global economies.

The market was trading at overbought levels and the Fed commentary gave the reason to begin the inevitable correction. The resulting scorecard was a mixed bag of positive and negative surprises.

The banking sector seems to be in the clean-up mode and hopefully, this quarter would be the last of disappointments. The recovery and incremental growth should start trickling in from the new financial year. A revival in the economy will make banks, both PSU and private players, star performers of the year.

Technical Outlook:
We are reiterating our previous week’s comment : “In the short term, the rising spree of the market seems to be stalling as the market has formed a Doji on the weekly chart, indicating either a pause or reversal to the lower level.”

The market indeed witnessed some serious profit taking. The strong resistence placed at 8,000 Nifty50 level would be an important hurdle for the bulls to cross before restarting their upward journey.

However, in the near term, a correction can lead the market back to the 7,500 level. Traders intending to take long positions should go out for May vacation or should be cautious before initiating long positions.



Expectations for the week:
The market is in the correction mode and should continue to be so for some more time. Corporate results are not up to the expectations and have already been discounted, thus leaving little room for a near-term upside. Ujjivan IPO should be subscribed as it is reasonably priced leaving some room for retail investors to make listing gains.

Gross NPAs stood at 0.15%, and the IPO is priced at 1.66 times the book with superior ROE of 19% and high visibility of sustained growth.

Some of the heavyweights that are expected to announce the results next week are HDFC, Adani Ports, Adani Power, Century Textiles, Godrej Cons, MRF, HeroMoto, Eicher Motors, MCX and Titan.

The bulls should exercise restraint and stay on the sidelines until the correction is over, which may take some more time. Nifty50 ended the week down by 0.62% and closed at 7,850.

Special Observation:
The chart below shows the historical time cycles of bull, bear, and corrective phases. Interesting facts throw a hypothesis that the market has a strong probability that a correction has already started and will take some more time before it is over.



(The author is CEO, SAMCO Securities. Views and recommendations expressed in this section are his own and do not represent those of EconomicTimes.com. Please consult your financial advisor before taking any position.)