Are Indian stock markets due for a short-term correction?

The market witnessed a sharp sell-off after hitting new milestones and we are seeing the first signs of distribution in the market as Nifty and Sensex ended with a mild cut but the real pain was in the broader market as Nifty Midcap index ended with 2 Deduction of more than %. The decline was led by names that were top performers such as IRCTC and Tata Power in the past few days. Majors like Infosys, HDFC Bank, Reliance and LT kept the market high, though FMCG giants HUL and ITC were the top gainers in the index. The lower volume growth put pressure on HUL, while the ITC saw a cut of over 6% after the government constituted an expert panel on future taxation policy for tobacco.

Technically, Nifty saw an opening red Marubozu candlestick pattern and ended below the 1

8500 mark which is the first sign of worry. However, 18350–18300 is an immediate support zone; Below this, it is vulnerable to a move towards the 20-DMA which might coincide with the psychological mark of 18000.

Bank Nifty is also facing resistance at the psychological level of 40000 while 40000 CE maintains the highest OI for both weekly and monthly closes and this may lead to some selling pressure from here but the actual pressure is only above 38500 level The downside will be visible, however if it manages to sustain above the 40000 mark then we can expect another short-covering rally towards 40500/41000.

The biggest issue in the market is that the current rally is not supported by institutional investors and there is a kind of excitement in the market especially in F&O stocks where you can easily find one or more stocks with more than 10% gain daily . The market is not charitable enough to make you easy money over the long run, so there is a risk of a short-term correction in the market to take out weak hands and this correction can be particularly sharp in individual stocks.

The long-term outlook of the market is bullish where intermediate corrections will be part of this journey and I think any meaningful correction will be healthy for the market. Long term investors are advised to stay invested in the market, where any meaningful correction should be taken as a buying opportunity to enter quality stocks. Short term traders should be cautious and very selective as there is a risk of getting trapped at higher levels.

Coming to global cues, bond yields, crude oil and other commodity prices continue to rise and inflation is still a cause for concern while macro numbers are not encouraging. Markets are not paying attention to these issues as we are in a strong bull run but these issues can lead to a correction anytime.

IRCTC witnessed a sharp decline after hitting a record high of 6396 in today’s trading session. Fundamentals are still strong, but valuations worried after a brisk run and there was an obvious speculative move as it was easier for every day traders to make money. We are seeing a technical correction where the psychological level of 5000 is immediate support but there is a risk that it could slide below it and move towards the 20-DMA which may coincide with the level of 4500 although 4000-3800 is a will be a critical demand area. Take a new buy position.

(Santosh Meena is Head of Research at Swastika Investmart)

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