Sensex, Nifty fall 1% each; how to trade volatile market?

The Indian benchmarks, Sensex and Nifty, ended with deep cuts on January 20 despite hitting fresh all-time highs in early trade – thanks to a fresh wave of profit-booking that enveloped the Street amid concerns over rising global crude oil prices.

Oil prices rose to their highest in more than a week after two large crude production bases in Libya began shutting down amid a military blockade, setting the stage for crude flows from the OPEC member to be cut to a trickle, reported Reuters.

Since India imports about 80 percent of its oil needs, the country’s economy and equity market are highly susceptible to crude price swings.

Moreover, the sentiment also took a hit after the December-quarter earnings of some heavyweight companies failed to meet expectations.

The 30-share pack Sensex hit a fresh all-time high of 42,273.87 but failed to hold altitude and ended the day with a loss of 416 points, or 0.99 percent, at 41,528.91.

Nifty also hit a fresh record high of 12,430.50 in early trade but settled 128 points, or 1.03 percent, down at 12,224.55.

Sensex saw the biggest intraday fall in five months while for Nifty it was the biggest intraday fall in 3 months.

Secondary barometers BSE Midcap and Smallcap indices outperformed Sensex, ending 0.57 percent and 0.39 percent lower, respectively.

As the market is expected to be on a bumpy track given the ongoing December quarter earnings season and global cues, what should be the strategy for trading in such a market?

“The market has approached a consolidation phase due to mildly subdued Q3 results in banking and heavyweights. It is fair to expect this mild consolidation to continue in the short-term after the solid performance of the last one-month with fantastic gains in mid and small-caps,” said Vinod Nair, Head of Research at Geojit Financial Services.

He said a lot will depend on the Budget announcements and broader performance in Q3 result, showing gain across the segment.

Ajit Mishra, VP – Research at Religare Broking said he is cautious on the market as the benchmark indices are near their all-time high levels.

“We continue to remain cautious on the market given that the indices are near their peak levels. The expectations from the Budget are high this time because of the current economic slowdown. This is likely to drive momentum across sectors. Further, the earnings announcement from corporates is likely to induce stock-specific volatility in the coming sessions. Therefore, we would recommend traders to remain cautious and hedge their risky leveraged positions,” Mishra said.

Top Nifty gainers: Power Grid Corporation, Bharti Infratel, Bharti Airtel

Top Nifty losers: Kotak Mahindra Bank, Zee Entertainment Enterprises, Indian Oil Corporation

Stocks & Sectors:

On the sectoral front, BSE Energy emerged as the top loser, falling 2.67 percent. It was followed by BSE Bankex (down 1.65 percent), Oil & Gas (down 1.30 percent) and Finance (down 1.26 percent).

The BSE Telecom pack bucked the trend and closed 1.89 percent higher, on gains in shares of Vodafone Idea (up 7.76 percent), Bharti Airtel (up 1.85 percent) and Bharti Infratel (up 1.63 percent).

As many as 228 stocks, including Indiabulls Integrated Services, Dishman Carbogen Amcis, Reliance Capital, Reliance Infrastructure, DHFL and Reliance Power, hit their lower circuits on BSE.

Volume spike of 400-800 percent was seen in stocks like NMDC, PFC, Federal Bank, Power Grid, Kotak Mahindra Bank and Indian Oil Corporation.

Long Buildup: Vodafone Idea, NMDC, Power Grid, Federal Bank and Bharti Airtel

Short Buildup: L&T Finance Holdings, Power Finance Corporation, Oil India, Kotak Mahindra Bank and Lupin

Stocks in the news:

Ending the session almost 2 percent higher, shares of Bharti Airtel extended their gains into the third consecutive session. The stock has been on an upward trajectory after the Supreme Court on December 16 dismissed a petition seeking a review of its judgment on adjusted gross revenue (AGR).

Shares of Reliance Industries ended 3 percent lower even as most brokerages retained their bullish stance on the stock after the Q3 results. CLSA and Nomura expect the stock to move above Rs 2,000 mark by the year-end.

Shares of Kotak Mahindra Bank fell almost 5 percent after the bank’s Q3 numbers failed to meet Street expectations. The bank’s standalone PAT for Q3FY20 stood at Rs 1,596 crore against Rs 1,291 crore in Q3FY19, up 24 percent. But the number was lower than a CNBC-TV18 poll of Rs 1,710.5 crore.

Lupin share price shed 4 percent after the US drug regulator issued observations for its Vizag facility.

Federal Bank share price ended 2.35 percent higher after the company posted a 32 percent YoY jump in its net profit to Rs 440.64 crore for the December quarter compared to Rs 333.63 crore in the year-ago period.

Technical View:

Nifty witnessed strong resistance from the upper band of the channel on the weekly chart and witnessed a selloff, forming a bearish engulfing candle pattern on the daily chart which is again bearish reversal candle by nature.

“If the index manages to sustain below 12,210, we may some more cuts in it. Immediate support for Nifty is coming near 12,155-12,100 zone and resistance is coming near 12,280-12,350 zone. As long as Nifty trades below 12,400 zone, we may see profit-booking on every rise in the index,” said Rohit Singre, Senior Technical Analyst at LKP Securities.