Sell-on-rise happening; time to be more cautious

Rohit Srivastava, Founder, Strike Money Analytics & Indiacharts, says “this is the 10th day today that the smallcap index is higher than the previous day. Of course, we have not closed. We have seen nine consecutive positive closings. And it is only when the broad market gives up, that we would start feeling that a corrective phase is kicking in. But as of now, the sell on rise is essentially because some part of the market is doing exceedingly well, like the PSUs in specific. But there are other parts of the market that are not really participating like banking.”

Let us discuss the market setup. For the last many days, there has been a bit of a sell-on rally. Do you think that is going to be the trend at least in the immediate term?

Rohit Srivastava: We have seen this market attempting to close up one day and then it is down the following day and then it is up again and then down again. However, it has made a series of higher highs and higher lows. That is a pattern that you want to see breaking to really sense that we are seeing this upward bounce that we have seen from January 24 come to a close. And for that, I would really want it to go back below the low that we made on budget day that is 21,658. And that would really be a sign that yes we are turning lower.


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We would also want to see the broad market give us that sense because this is the 10th day today that the smallcap index is higher than the previous day. Of course, we have not closed. We have seen nine consecutive positive closings. And it is only when the broad market gives up, that we would start feeling that a corrective phase is kicking in.

But as of now, the sell on rise is essentially because some part of the market is doing exceedingly well, like the PSUs in specific. But there are other parts of the market that are not really participating like banking. That gives you a feeling that there is a sell-on-rise happening. But there are some parts of the market that are keeping it up.

PSUs have seen a very good runup as well. Is that something still interesting, would you still look at the PSU pack any specific names or sectors in the PSU basket or is it something that now one should just stay away from given the run up?

Rohit Srivastava: We were very positive on PSU stocks in general for most of the last two years but right now, especially in short to medium term, I would become cautious for many different reasons, one of them being that when you look at the weekly chart of the PSE index and you look at the RSI indicator it is actually at 93 and on the monthly charts it is at 91.

Now readings above 90 are very rare. The last time it happened was in 2003. So, it was very long back and when we get this kind of reading we would sense that some kind of a near-term setback is due or expected before things can normalise again.

So it has had a pretty one-sided run and you do not want to just buy into the highs you want to let it settle down before you really do that. So we are actually cautious, I am actually being sounding out cautious on the run up in the PSU basket.

What is your view on the realty space because that has already seen a very good runup as well in the last one year. Overall, is it time to enter the realty sector and should one still enter something in the realty basket or something that you should watch out for?

Rohit Srivastava: It is an interesting space. With some kind of a lag, realty ends up doing well after equities do well, so there is usually a lead lag and which is why more than a year into this bull run, realty has started to pick up and that is completely normal.

Sometimes the sector as such at least fundamentally can continue to do well even after equities start cooling off but equity prices can be extremely correlated. We will see it does not so far look like any major reversal has really happened on the realty index and probably if it pulls back 814 on the Nifty Realty Index would be a good support level to watch. If it holds that then maybe the upward trend can really continue and that is what we will be looking for.

Lastly, in the small and midcap space, is there anything in terms of value that is still left because you were talking about how the run-up has already come in? Is any value still left in that basket and any specific stock that you are looking at?

Rohit Srivastava: Value can be tricky because on the one hand, it is true that even in the last quarter earnings of the mid and smallcap segment were far higher than the Nifty segment like a difference of around 28 to 30% earnings growth. Even now, some stocks are still reporting positive earnings and so if earnings growth is a source of value, then that value may still be there. What is very short term is the botheration that it has been one way up and there should be a technical correction at some point of time.

I already mentioned we have got nine consecutive days positive over the last month. Jan to Feb is seasonally a toppish period for markets in general. In fact, February has the weakest record on our 10-year annual average basis. February is usually the weakest month of the year and that is why this is a time to be a little more cautious even if your overall picture on the market is positive or a particular stock is positive we just want to retain a cautious outlook.

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Harry Byrne

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