Market Insights: Exploring weaknesses and opportunities across sectors

ET Now: But tell us, is that a big concern given the kind of levels we are seeing right now? What levels are we sensitive to at this stage?

Rajesh Palvia: The 200-day moving average is closely followed by most traders and investors. Breaking this level for the second time in a one-month time frame raises caution in the market as it signals an inability to sustain above this critical support level. We first broke it in November and now we’re back down again.

Looking at the broader market intensity, we clearly see signs of weakness. No sector is holding ground and most large-cap stocks are under supply pressure. Recent declines in stocks such as Siemens and other capital goods companies reflect this cautious sentiment as macroeconomic concerns persist.

If we fail to sustain above 23,800, the next downside level to watch is 23,350, which was tested in November. This indicates continued weakness. Currently, the strategy remains on sell-rise, even though we are in an oversold path. Selling pressure from FIIs is preventing a significant pullback despite oversold conditions.

The put-call ratio also indicates that we are in the oversold zone for both Nifty and Bank Nifty, which coincides with December’s monthly close. This marks the third consecutive month of decline. If Nifty breaches 23,800, we can see a recovery, but a break below this level opens further downside towards 23,350.

As for the Bank Nifty, the 200-day moving average, currently at 50,500, is a key level. Failure to keep above this can result in a reduction of up to 50,000. For recovery, 51,200 must be crossed. Until then, the framework remains bearish for Bank Nifty as well.

ET Now: Let’s turn to the consumption space. If we look at Nifty’s year-to-date top gainers, Trent leads the pack, while top losers include Asian Paints, Nestle and Tata Consumers. What is your estimate for the consumption sector? Should one focus on broad consumption themes like pure-play FMCG or retail?

Rajesh Palvia: In such markets, FMCG stocks generally outperform due to their defensive nature. However, this correction shows unusual behavior – most FMCG and consumption-based stocks are underperforming.

The sector is facing slow consumption growth, and this pressure may continue. Large-cap names like Asian Paints, Hindustan Unilever, Dabur and Merico are trading below their long-term and short-term moving averages, breaking monthly support zones. The short-to-medium-term outlook for these stocks remains bearish, so a bullish selling strategy applies here as well.

Although Trent has performed well throughout the year, it has also faced supply pressures and is now struggling to break above its 50-day moving average. The broad consumption basket lacks confidence from both traders and investors. One should wait for a broader market recovery before considering opportunities in this space.

ET Now: In that case, what would be a safer place to focus? Will rupee-dollar dynamics benefit IT or pharma or will technical rebound provide relief?

Rajesh Palvia: Sectors above their 50-day moving average are likely to advance during the recovery. Currently IT, Pharma and Real Estate sectors are maintaining strength. These indicators are still above their 50-day moving averages, making them attractive for a short-term perspective.

For anyone looking at short-term opportunities, IT, pharma, healthcare and real estate stocks are worth considering.

ET Now: What about the banking sector? Banks seem oversold but show no signs of recovery yet.

Rajesh Palvia: Until the market goes back to the comfort zone of 24,000, we will not see a meaningful recovery in beaten-down sectors like banking. While there may be some short covers, the overall structure remains weak. Let the broader market recover first, and then value-picking opportunities in the banking sector may emerge.

ET Now: What are your stock recommendations for the coming week?
Rajesh Palvia:

1. Hero MotoCorp (Sell): The stock looks weak, and we expect more downside. Target is ₹4,240 with stop loss at ₹4,380.
2. UBL (United Breweries Ltd) (Buy): The stock has shown strength for four consecutive weeks. Target is ₹2,090 with stop loss at ₹1,990.
3. Dr. Reddy’s (Buy): The stock is outperforming and has risen for three consecutive days. Target is ₹1,390 with stop loss at ₹1,310.