Chances of a trend to continue are far more than that of a reversal, and, common investors, including experts, are very poor to call the reversal points, Manoj Dalmia, Founder, and Director- Proficient Equities Limited said in an interview with Zeebiz’s Kshitij Anand.

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Predicting tops are really difficult, almost impossible, but, investors may keep an eye on the interest rate-sensitive sectors like Banks, Auto, etc., Dalmia addedd. Edited excerpts:

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Q) D-Street hit a rough patch as both Sensex, and Nifty fell after touching record highs. What led to the price action?

A) A decline of 400 odd points or merely 2 per cent in the Nifty50 index can hardly be called a rough patch. However, there are meaningful corrections taking place in the individual stocks.

Many popular stocks like IRCTC, Tata Power or Tata Chemicals have fallen significantly from their recent highs, denting many investors’ unrealized gains & that is hurting a lot.

Otherwise, this is a normal bull market correction till now, aimed at shaking out the weak bulls and even VIX has not crossed its September high as yet.

Q) The next big question which investors would have is – have we hit a top? If not, any signs which investors should watch out for?

A) It is true that there are strong divergences in various momentum oscillators; there are even talks of liquidity tightening by central banks across the globe in near future.

But the entire bull market has allayed these concerns for the past several months now. Noteworthy: that the US market has taken a new high the previous week repealing all these fears.

So even though the market breadth is poor, which is a common characteristic feature of all bull markets, and that the market has fallen for four consecutive sessions a previous week, yet there is still a lack of sufficient technical evidence to assert that we have already seen an intermediate top at 18477.

Predicting tops are really difficult, almost impossible. But, investors may keep an eye on the interest rate-sensitive sectors like Banks, Auto, etc.

With SBI, Kotak, ICICI, HDFC hitting new highs, bears might find it difficult to cover their shorts at lower levels.

Q) The momentum on D-Street slows down ahead of Diwali. Do you think bulls could bounce back and take market to record highs? Key levels to watch out for on Nifty and Nifty Bank?

A) The chances of a trend to continue are far more than that of a reversal. And, common investors, including experts, are very poor to call the reversal points.

Given these facts, statistical probabilities are higher that we will get a higher high.

For Nifty, the key level is 17500. For Bank Nifty: it is 39200 & 38300. If the indices keep above these levels, short-term uptrends survive.

Q) Sectorally, banking and financial service managed to outperform. What led to the price action – is it because of commentary from Moody’s and privatization hopes? Nifty Realty takes a hit after strong rally seen in previous weeks.

A) Possible interest rate hike by central banks is already factored in the prices and this is not going to be a nasty shock anymore when it comes.

Additionally, as the economy is getting back into shape people are showing more willingness to spend.

Auto-stock numbers are expected to be good. All these factors are contributing to the good performance of banks & other financials in general. 

Q) How can investors limit downside? We know that VIX has gone up, and there is a possibility of further consolidation. Should investors focus on avoiding leverage, maintain stop loss etc. What are the other measures?

A) Leverage is a function of an individual’s risk appetite & there is no one-size-fits-all type of general solution in this regard.

Maintain Stop Loss:

Maintaining stop loss is a practicable approach but often difficult to implement for common investors due to short-term randomness in prices.

Diversification:

Diversification is a great tool to reduce risk. At the present state of the market, an investor may align his portfolio to that of a major index, in composition & weightage.

Composition of small & midcaps:

The idea is that if any significant correction comes, mid-and small-cap stocks will take a bigger hit than the large-cap composition stocks of the index. By doing this, he will not underperform the index.

Add Gold:

Additionally, there are reasons to believe that Gold is likely to rise from current levels in the short to intermediate-term. So, an equity investor might consider adding Gold ETF to her portfolio to hedge the risk of equities.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)