We should be cautious in terms of investing in mid-cap stocks, though we must be aggressive to take contra trades in large-cap stocks, Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities said in an interview with Zeebiz’s Kshitij Anand.

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Q) Benchmark indices have recorded their worst fall since April. What is your take on markets and important levels to watch out for?

A) The markets are down but not out. Due to stiff weakness in the world markets, the benchmark indices corrected sharply on Monday and bounced back on Tuesday.

Technically, the market has broken the previous low which was at 16782.40 that has triggered further technical selloff in the market on Monday.

The market witnessed a sharp pullback rally thanks to a recovery in key global indices on Tuesday. Despite the reversal from the recent bout of correction, nervousness in the market could continue, as the Nifty has formed a Doji kind of candlestick formation which indicates indecisiveness between bulls and bears.

On the intraday charts, it has also completed one leg of pullback rally. We are of the view that after a modest pullback rally, the market may consolidate within the range of 16600 to 16950.

The pattern of the chart suggests 16700 and 16600 would be key support levels, while 16900-17000 would act as an immediate hurdle for the market. However, below 16600, the uptrend would be vulnerable.

Q) There are 60 stocks that are trading below 100 & 200-EMA in the BSE100 index. There are 13 stocks with a market cap of more than Rs 1 lakh cr slipping below 200-EMA. Should one go cautious and avoid contra trade?

A) Primarily the market started falling due to a rise in energy prices and overstretched valuations.  The market gained nearly 30% from April 2021, which was beyond anyone’s imagination and maybe that’s the reason the correction of the market is looking severe.  

This is the first severe fall which is more than 10 per cent; however, the market has taken the same period of 42 days for correcting that it has taken before the mega rally that we witnessed of 30% from the levels of 14150.  

It is a healthy correction and technically we are considering it as an opportunity to invest in large-cap companies. We should be cautious in terms of investing in mid-cap stocks but we should be aggressive to take contra trades in large-cap stocks.  

Q) What does it mean when the stock or index trades below 200EMA?

A) The 200-day EMA level serves as the crucial support for the market if it is falling from a high or if it is recovering from a low -- it acts as support or resistance respectively.

However, it depends on how often stocks and indices try to trade below or above the 200-Days EMA support or resistance. In the first fall below 200-day SMA or a 200-day EMA, dip buyers come to invest in the market with a medium to long-term outlook.

Sometimes there is a temporary pullback and sometimes the rally seems to have started a new. We believe that the market is falling to the 200-day EMA support, which is at 16287 and soon we would see a decent pullback in the market.

Q) The NiftyBank also slipped below 200-EMA – what should investors do? Crucial levels which one should watch out for?

A) In the same way that we discussed the 200-day EMA, the Nifty-Bank is breaking the support of the 200-day EMA for the second time, which is negative and we may see some further weakness in the financial sector or the pull-back will remain weak.

Q) Many banking stocks have also slipped below the long-term average. Any stocks that are looking for good buy on dips stocks?

A) Although Nifty-Bank is trading below the 200-day EMA support, some components of the Nifty Bank like SBI and ICICI Bank are trading above the 200-day EMA level. Invest in these stocks with a medium-term outlook.

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