Stick to large-cap stocks

The March 16-22 period under review saw markets in India and globally behave in a volatile manner. While they recovered a small part of the previous week’s losses, the uncertainty about the banking sector still surrounds markets. What began as one bank has escalated and the situation is much more volatile than expected. Markets gained on four of the five trading sessions and lost on just one session. BSE Sensex gained 658.69 points or 1.14 per cent to close at 58,214.59 points, while Nifty gained 179.75 points or 1.06 per cent to close at 17,151.90 points.

Dow Jones gained on three of the five trading sessions. It was up 405.20 points or 1.26 per cent to close at 32,560.60 points. After the collapse of SVC (Silicon Valley Bank), it was the turn of Credit Suisse Bank, which was transferred to UBS by the Swiss regulators for a consideration of $3.23 billion or 3 billion Swiss Francs. In the US, First Republic Bank was yet another bank to go down under.

The US Fed meets for its six weekly review meeting on interest rates. While their efforts on tightening the economy through Quantitative Tightening and reducing the liquidity over the last six months have come to virtually zero, post they allowing banks to borrow against T-Bills at issue price for a period of one year, the state of the US banking crisis has been exposed. While it is widely believed that there would be a 25-basis points hike, the way markets would react post the hike would depend on the commentary. The reaction would cause movement in global markets tomorrow.

The lows made intraday during the week were at 57,158.69 on BSE Sensex and 16,850.15 points on Nifty, while the highs made were 59,418.42 points and 17,207.25 points. The range is huge and gives a feeling that there is a certain amount of uncertainty and nervousness in the marketplace. What needs to be kept in mind is that the lows were made on the opening day, Thursday, while the highs were made on the closing day, Wednesday.

The March 23-29 period ahead would end one day ahead of March Futures expiry. The February series had ended at 17,511.25 points and considering the present level of around 17,150 points, has a long way to go to play catch up. As of now it appears the bears have the upper hand and should be able to carry the series.

In the midst of all of this market volatility, primary markets have been at the receiving end. There has been just one listing in the month of March and with three bank holidays in the first fortnight of April, nothing is likely to happen till maybe the second fortnight of April at best. One disturbing thought is the prediction from Skynet about the monsoon season. They have forecasted that the upcoming monsoon would be below normal. While the Indian MET department is yet to release its forecast, this could become a worrying fact.

The strategy for the week depending on what the FED does would still be simple. Use rallies to sell and sharp dips to buy. Buying should only be done in the large-cap stocks as pain in the Small-cap and mid-cap stocks persist as of now. Key support for the market would now be around 16,900-16,950 on Nifty and 57,400-57,550 on BSE Sensex. These are marginally higher than the intraweek lows. This would be followed by support at 16,600-16,650 on Nfity and 56,500-56,650 on BSE Sensex. These levels are likely to hold for the week unless something unexpected happens post the FED meeting in the US. On the resistance side, the first level is 17,300-17,350 on Nifty and 58,600-58,750 on BSE Sensex. The next level would be the intraweek highs made last week at 17,525-17570 on Nifty and 59,500-59,650 on BSE Sensex.

As long as markets trade in the limits of 57,550 and 16,900 on the lower side and 58,750 and 17,300 on the upper side they would remain volatile but directionless. They need to break out or break down from these levels for any meaningful move. Gut feel says that depending on the move over the next two to three days, they would give indication of a trend finally. Stay cautious.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)