Comment

The Budget has received a thumbs down from the market players as the proposals failed to live up to the lofty expectations of the participants. However, it should come as no great surprise for technical analysis followers as I had advocated in DNA Money on May 19, 2009 (Coppock signal: Don’t be a sucker) and on June 19 (Gap ups need to be closed).

What the rally had chose to overlook in the irrational exuberance was a plain vanilla fact — the intraday high of May 18, 2009, was 4384 on Nifty spot, the day the indices recorded twin upper circuits, was barely surpassed in the following month-long trading period.

The verdict has been that of weakness. Had the markets indicated a bullish pattern, the Nifty was unlikely to go past the 4800 mark as per Elliot Wave studies. The bulls had a serious problem here of over head supply to contend with.

Now that markets have indicated which way they are likely to go, we estimate the downside potential in the absolute near term.

In terms of sectors, I feel the diversified large stocks will rebound first as institutional support will be forthcoming.

The midcap sector (yardstick of retail risk appetite) may take a while in recovering as the retail player is likely to take time to recover from the shock of capital erosion and/ or margin calls if leverage was employed to participate.

Technology maybe relatively insulated but not necessarily gain significantly. Infrastructure, E&P, two wheelers, soil / water management/ irrigation stocks, FMCG and entry level white good manufacturing companies may outperform the broader markets.

Investors may safely assume a patient stance on the buy side as the immediate outlook is that of pressure and buy orders on lower levels are likely to get filled. Deep discount bottom fishing is the preferred way forward.

The author is CEO, BSPLindia.com