Top Picks: Avoid bottom-fishing in weak sectors, says Ashwani Gujral

The Nifty has started a pullback from 5483 led by metals and rate-sensitives as defensives like pharma, IT and FMCG have gone into the correction mode. This should be a flat to up 3-5 day pullback which should again lead to a decline.

Global markets are getting into a weak zone, which could be another straw that can break the camel’s back. Global brokerages are starting to downgrade both GDP growth projections and Nifty targets. It is likely that RBI and the finance ministry will take measures to defend the rupee which are likely to come at the cost of growth.

The rupee is hanging on to lows at 61-61.5, as more and more liquidity is tightened, it should lead to a slowdown in growth and, hence, a risk of flows. We also expect import duties going up on several products and other sentiment-improving measures. These painkillers are not likely to solve the longer term issues of emerging markets becoming dependent on foreign flows to fund current account deficits. It is imperative that bottlenecks in the economy are removed, key reforms are carried out, which seem unlikely before the general elections. Monetary measures are unlikely to solve structural problems. We are on a path of making policy mistakes, which is likely to take us to the point of crisis before a turn comes.

Given the status of rupee, all these monetary measures are likely to slow the rupee downtrend, leading to a correction in the pharma and IT space. But given the rupee tailwind, these are the only two sectors likely to hold up in the market. Use dips to add positions in stocks like TCS, HCL Tech, Sun Pharma, and Lupin. Avoid bottom-fishing because in weak sectors, bottoms can be very far off. Key weekly levels for Nifty, Bank Nifty and CNXIT are 5590, 9864 and 7813, respectively.