Trade Setup For May 8: Is the Nifty set for a retest of 22,000 on the downside?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The market has lost ₹10 lakh crore in market capitalisation during this three-day drop. The Nifty has shed 350 points in the last three sessions. At one point, it felt as though the index would even struggle to hold on to 22,200 levels on the downside, but it huffed and puffed its way back above 22,300 by the close of trade, but only by a whisker.

IT and FMCG came to the Nifty’s rescue on Tuesday when every other sectoral index sold off. Here is the extent of the sell-off in the broader markets on Tuesday:

• 88 out of 100 stocks on the Midcap index ended lower
• 84 out of the 100 stocks on the Smallcap index ended with losses
• All 12 stocks on the PSU Bank index, All 10 stocks on the Realty index, All 20 stocks on the Pharma index, and 19 out of 20 stocks on the PSE index ended with losses on Tuesday.

In fact, the PSU Bank index has now shed nearly ₹1 lakh crore in market capitalisation in the last two days of losses. More than 50% of the Nifty’s fall on Tuesday came from the trio of HDFC Bank, Reliance Industries and ICICI Bank.

Wednesday will also be the weekly expiry for the Nifty Bank, with some big Nifty names reporting results.

Nifty names like L&T and Hero MotoCorp will report results on Wednesday, while stocks like Tata Power, TVS Motor, Sterlite Tech, Sula Vineyards, Westlife Foodworld, Godrej Agrovet within the broader market universe will also be reporting numbers.

Stocks like Dr. Reddy’s IGL, Navin Fluorine, Pidilite, Voltas, JSW Energy and others will react to their earnings on Wednesday.

Foreign investors continued to remain heavy sellers in the cash market on Tuesday, while domestic institutions tried to offset the selling pressure. DIIs now own as much of Indian equities as FIIs do. You can read more on that here.

Shrikant Chouhan of Kotak Securities expects the market to retest levels of 22,200 – 22,100 on the downside till it does not cross 22,450 on the higher end. Only a move above 22,450 can take the index back to 22,525. The current sentiment of the market remains weak.

The lower tops and bottoms on the daily chart of the Nifty remain intact and the present weakness can be in line with a new higher bottom formation of the pattern. The immediate resistance for the Nifty is at 22,400 with next lower levels seen at 22,100 and 22,000.

Angel One’s Rajesh Bhosale is of the view that there may be intraday bounces as prices approach key support levels at the 89-Day Exponential Moving Average and the 61.8% retracement. He advises using such rebounds to reduce long positions ahead of the Lok Sabha polls results. Immediate resistance on the upside seen at 22,400 and 22,480, while 22,200 and 22,150 are some key supports.

PSU Banks continue to remain a sore spot for the Nifty Bank and adding to that pressure comes the underperformance from two of its biggest constituents – HDFC Bank and ICICI Bank. Within four trading sessions, the Nifty Bank has corrected 1,700 points from its record high of 49,974. With Tuesday’s drop, the Nifty Bank is now just 50 points away from turning negative for 2024 yet again.

On the hourly chart, a head and shoulder pattern has emerged on the Nifty Bank, with the index already breaking below the neckline, said Kunal Shah of LKP Securities. He anticipates further weakness on the banking index in the coming days, taking the index down to levels of 47,700.

Om Mehra of SAMCO Securities said that the Nifty Bank has broken an important level of 48,342, which indicates slowing of the bullish momentum. A drop below 48,100 can drag the index down to its 61.8% retracement level of 47,870.

The Nifty Bank may extend its weakness towards levels of 48,000 or even 47,700 on the downside till it remains below the previous weekly close of 48,340, said Hrishikesh Yedve of Asit C Mehta Investment Intermediates. Both 48,000 and 47,700 remain strong support levels on the downside.

What Are The F&O Cues Indicating?

Nifty 50’s May futures shed 3.8% or 4.2 lakh shares in Open Interest on Tuesday. They are now trading at a premium of 79.3 points from 107.45 points earlier. On the other hand, Nifty Bank’s July futures added 6.9% or 1.4 lakh shares in Open Interest. Nifty 50’s Put-Call Ratio is now at 0.78 from 0.85 earlier.

PNB and Zee Entertainment have entered the F&O ban, joining Aditya Birla Fashion, Biocon, Vodafone Idea, Balrampur Chini, GMR Airports Infra and SAIL.

Nifty 50 on the Call side for May 9 expiry:

On the Call side, the Nifty 50 strikes between 22,300 to 22,500 have seen Open Interest addition for this Thursday’s expiry.

Nifty 50 on the Put side for May 9 expiry:

On the Put side, while the 22,300 strike has seen Open Interest addition, the 22,400 and 22,500 strikes have seen shedding for this Thursday’s expiry.

These stocks added fresh long positions on Tuesday, meaning an increase in both price and Open Interest:

These stocks added fresh short positions on Tuesday, meaning a decline in price but increase in Open Interest:

Unwinding of long positions was seen in these stocks on Tuesday, meaning a decline in both price and Open Interest:

These are the stocks to watch out for ahead of Wednesday’s trading sessions:

• Dr. Reddy’s Laboratories: Reported numbers miss estimates. Adjusted for one-offs, India business in-line with estimates. North America sales decline 3% in rupee terms sequentially. EBITDA margin of 26.4% below estimates of 28%. Adjusted for non-core brands divested in the previous year, growth is 17%. Sequential decline in the US business due to decline in base business volume and price pressure. Global generics business up 13%. Within EM, Russia down 4% due to unfavourable currency, CIS and Romania down 5% and 7% sequentially.
• Voltas: Revenue up 42.1% to ₹4,202.9 crore, higher than estimates of ₹3,927 crore. Net profit down 22% to ₹110.6 crore. EBITDA margin narrows to 4.5% from 7.38%. Unitary Cooling Products business continued to outperform the market with volume growth of 27% and year-on-year growth for ACs stood at 35%. The domestic projects business grew 38% led by a healthy order book. International projects business continues to face headwinds. Further provisions and delays in Qatar led to a loss of ₹108 crore for the quarter. Board recommended a dividend of ₹5.5 per share.
• JSW Energy: Net profit up 22.5% to ₹345.3 crore, revenue up 3.2% to ₹2,755.9 crore. EBITDA up 56.8% to ₹1,168.5 crore. EBITDA margin at 42.4% from 27.9% last year. Board approved raising another ₹10,000 crore in one or more tranches through the issuance of eligible securities, preferential issue or QIP. Current net debt at ₹26,636 crore.
• Indraprastha Gas (IGL): Net profit of ₹382.8 crore down 2.4% from last year and in-line with estimates of ₹388 crore. Revenue flat at ₹3,596.8 crore and also in-line with expectations. EBITDA down 6.4% from last year to ₹522.6 crore, while margin narrows 120 basis points to 14.5%. Total volumes up 6% to 8.73 MMSCMD.
• Navin Fluorine: Net profit of ₹70.4 crore, higher than CNBC-TV18 poll of ₹58.4 crore. Revenue of ₹602 crore also higher than the estimate of ₹548 crore. EBITDA in-line with expectations of ₹110.1 crore. EBITDA margin down to 18.3% from 29% last year. Specialty Chemicals sales increase by 26% led by availability of full quarter capacity at Dahej, higher utilisation at Surat and addition of new molecules. Capex of ₹30 crore towards development of a completely new capability in Surat is on track and is expected to generate revenue from financial year 2025. HPP business revenue up 3%. CDMO business down 76% due to deferral of molecules. Order visibility from existing agreement with European CDMO major for financial year 2025. cGMP4 capex worth ₹288 crore approved by board. Phase 1 outlay of ₹160 crore on track to be commissioned by the end of 2025.
• KEC International: Revenue up 11.6% to ₹6,164.8 crore, EBITDA up 36.9% to ₹388.1 crore, EBITDA margin up 90 basis points to 6.3% from 5.2%, while Net profit doubles to ₹151.7 crore from ₹72.2 crore. FY24 order inflow at ₹18,100 crore with current order book at ₹29,644 crore. L1 position of another ₹7,000 crore worth of orders. EBITDA margin misses FY24 guidance of 6.5%, coming in at 6.3%.
• IRB Infra: Revenue up 27.3% to ₹2,061.2 crore, EBITDA up 17.3% to ₹889.9 crore. EBITDA margin at 43.2% from 46.8%. Adjusted profit at ₹98.4 crore from ₹147 crore as company recognised MTM loss of fair value of investments and loss on cash flow hedge. Company said it looks forward to a more promising FY25 with growth momentum in continuing in the coming year. Order book at the end of March 2024 is at ₹34,800 crore.
• PB Fintech: Revenue up 25% from last year, adjusted margin up 311 basis points to 6.33% from 3.22% last year. Premium generated increased by 40% from last year in the online business. New initiatives turn contribution breakeven with premium generated rises by 50%.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow