Sensex, Nifty in firm grip of bears; should you invest now or wait for further correction in stocks?

Sensex and Nifty look set to add to yesterday’s losses with both the benchmark indices trading in the red, and volatility sitting above 22 levels. While analysts say a correction was expected, with equity markets having surged significantly in recent months and valuations being expensive. The reason behind the fall is largely the renewed fear of lockdown and a second wave of coronavirus across Europe, which was partly responsible for the abundant liquidity fueling domestic markets. Now, the question remains when to tap into this market to reverse any loss that investors have made.

Not now, is what both fundamental and technical analysts say. “Post the breaking of 11300-11350 levels, the Nifty has turned bearish. The upside resistance level is 11600,” Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments told Financial Express Online. He further advised traders to consider long positions only if the markets achieve these levels on a closing basis. “Until then, we can expect markets to slide further to 10950-11000 levels. Hence, a sell on rise approach can be implemented,” he added.

Till the end of last week, Sensex was up 49.5% from its March lows while the 50-stock Nifty was up 51% since March. “Everyone was talking about markets being overvalued so we needed a reason for markets to correct. I think 10,800 could be a good level to buy at if the market goes to that level,” said Abhimanyu Sofat, Head of Research, IIFL Securities, while adding that he is not certain stock markets will correct that far. Explaining the rationale behind the slip in equities, Vishal Wagh, Head of Research, Bonanza Portfolio said, “India was getting liquidity from Europe and other countries, now with fear of a second wave, things are not looking good for the global economy which affects liquidity coming into domestic markets.” Wagh expects Nifty to come down to 10,500-10,800 if the situation does not improve but refrains from advising investors to tap into the market even at those levels.

On the charts, Nifty has given up the crucial support of 11,400 which is not the new resistance level in the short-term. “The next immediate support level is at 10,882; but the ultimate support level is at 10,775, which is our target for next 2-3 weeks,” Vinay Rajani, Technical Research Analyst, HDFC Securities, told Financial Express Online. “Now that the US markets have also started weakening, and FMCG stocks are weakening too, Nifty would continue to remain under pressure for the next 2-3 weeks. Any pull back rallies meanwhile must be used by investors to sell,” he further added.