Auto, banks, consumer stocks may see some upside

By Vikas Jain, Senior Research Analyst, Reliance Securities

Where are we: Nifty traded volatile in the current month, a sharp correction from 10,500 (monthly pivot resistances). It bounced back from its 50-day average in past two days negating the decline to 0.5 per cent MTD.

Bank Nifty continued to outperform and closed at an all-time high level with gains of 2.8 per cent MTD, especially led by PSU banks, which gained 7.5 per cent in the current month.

Among the other sectors, profit-booking was witnessed in pharma, energy and metals to decline by 6.1 per cent, 3.8 per cent and 2.8 per cent, respectively.

What is in store: After a sharp volatility in the first half of the month, we believe the markets would consolidate at current levels in a broader range of 10,100 -10,400 levels over the next 2 weeks. Following Moody’s up-gradation of India’s sovereign ratings and endorsement of reform process, any major downside from current levels would be protected by strong buying by the FIIs.

On the higher side, sustenance above 10,400 levels, the monthly candle would turn positive and recover prior damages and will strengthen to attain new highs.

What could investors do: One may initiate longs in auto, banking and consumer space for reasonable upside, while pharma stocks can be added from a long-term horizon after a sharp decline of 10 per cent from its 200-day SMA.

Investors can adopt a ratio put spread strategy of 10,300-10,100 strikes with a net premium of Rs 32 to hedge the portfolio in case the market declines due to any adverse global or domestic news flow.