Trade Setup for October 23: Have the Nifty bears opened doors for a drop to 24,000?

Earlier on Tuesday, we had asked a question as to whether the bulls would be able to defend the recent Nifty low of 24,564. The answer? A loud NO. While Monday’s session brought volatility along with it, Tuesday was a one-way drop for the Nifty and the market overall as every crucial level was violated and every small bounce intraday was sold into.

Within a month of making a record high of 26,277, the Nifty 50 has already corrected nearly 7% from those levels, which is a fall of nearly 2,000 points in absolute terms. In fact, the Nifty made an intraday low of 24,445 and closed just 30 points above that. A close below another important level of 24,500 will also not please the bulls. ICICI Bank was the only index constituent that ended with some sort of gains.

A sharper sell-off though, has been taking place in the broader markets. The Midcap index too is down 7% from its September 24 peak, but the ferocity of the fall has been a lot severe compared to the benchmark index. Out of the near-5,000-point drop that the Midcap index has seen, over 2,500 points or 50% has come in just the last two sessions. At least 35 stocks on the Midcap index are down 10% or more over the last one month. Shares like Vodafone Idea and Cochin Shipyard have even halved from their respective peaks.

Earnings reactions were extreme on Monday, and they were extreme on Tuesday as well. Most of the earnings misses were punished anywhere between 8% to 10%. Supreme Industries (down 9%), Jana Small Finance Bank (down 9%) were some examples. Only City Union Bank stood out amidst this carnage, ending 12% higher on a day when most broader markets found themselves on the wrong side of the fence.

The two-day fall has led to a cumulative erosion of ₹13.7 lakh crore worth of investor wealth. The Smallcap index, which had been rather resilient amidst the Midcap fall, declined 4% in a single session on Tuesday. Barring Dr. Lal Pathlabs, every single stock on the Smallcap index ended lower.

“Every correction is unnerving. We have seen one after a long time, and that’s why I think the reaction is what it is. I don’t see any panic as such. I think the discussion is still on how much to put at what levels,” Gurmeet Chadha of Complete Circle told CNBC-TV18 on Tuesday. “I still think this is a buy on dip market. I think this is where you get more bargains. And a lot of these types – look at auto index had doubled. Recycling themes – those stocks had double. So some bit of a pullback is normal, and I think it will bring sanity to the market,” he added.

Wednesday, the day of the Nifty Bank weekly expiry, will see stocks like Bajaj Finance, Amber Enterprises, Can Fin Homes, ICICI Prudential, M&M Finance, Max Financial Services, Persistent Systems, Coforge, Zomato, among others react to their quarterly results.

Wednesday’s session will also see stocks like Hindustan Unilever, Bajaj Finserv, Birlasoft, Craftsman Automation, Godrej Properties, IIFL Finance, Karnataka Bank, Dr. Lal Pathlabs, MAS Financial, Metro Brands, Nuvoco Vistas, Sona BLW, TVS Motor, VIP Industries, Syngene, SBI Life Insurance, United Spirits, Piramal Pharma, Sagar Cements among others report results.

Foreign institutions continued to remain net sellers in the cash market on Tuesday, extending their total selling spree in October past $10 billion. The domestic institutions outbought their foreign counterparts for the second day running.

“I had anticipated the short-term bounce to come through for the Nifty, but whereas for the Nifty, the bounce has been lacking, and in fact, it surprised me to the downside, whereas it came through for the banking index. That tells me the market is actually weaker. The nearest support for the Nifty is actually at 23,890 to 23,800. I’m still anticipating some bounce to come through, but the fact that the Nifty broke the October 7 low without giving a chance, that’s a bit of a surprise and pointing to weakness,” said Jai Bala of cashthechaos.com.

Jatin Gedia of Sharekhan by BNP Paribas said that the Nifty has decisively slipped below its 20-Week Moving Average of 24,718, which indicates weakness and the daily and hourly momentum indicators are also in a negative crossover. He expects the Nifty to slip further down to levels of 24,000, where there is high Open Interest concentration on the put side. On the upside, 24,900 – 25,000 will act as a resistance.

HDFC Securities’ Nagaraj Shetti also said that the near-term Nifty trend is weak and a decisive move below 24,450 will open further downside towards levels of 24,000. Immediate resistance is at 24,700 and any pullback to those levels could be used as a selling opportunity.

The Nifty Bank, which appeared to be the better placed among the two benchmark indices also fell prey to the selling pressure seen across the board on Tuesday. The Financial Services weekly expiry also added to the volatility on the index. 51,000 on the downside now becomes a very key level for the Nifty Bank to defend, failing which analysts expect further downside. The index will be in focus on Wednesday due to its weekly expiry.

The Nifty Bank has formed a bearish candle on the daily chart, indicating weakness and the index is now very close to its 100-Day Exponential Moving Average support at 51,100, said Hrishikesh Yedve of Asit C Mehta Investment Interrmediates. A sustained move below 51,000 could trigger further downside on the index, leading to a more pronounced decline, he added.

What Are The F&O Cues Indicating?

Nifty 50’s October futures added 1.7% or 2.16 lakh shares in Open Interest on Tuesday. They are now trading at a premium of 66.2 points from 7.7 points earlier. On the other hand, Nifty Bank’s October futures added 3.3% or 84,045 shares in Open Interest on Tuesday. Nifty 50’s Put-Call Ratio is now at 0.73 from 0.93 earlier.

Granules India, IDFC First Bank, SAIL and Hindustan Copper are out of the F&O ban today.

Aarti Industries, Birlasoft, Bandhan Bank, Chambal Fertilisers, GNFC, IEX, IndiaMART, Manappuram Finance, Piramal Enterprises, PNB and RBL Bank continue to remain in the F&O ban.

Nifty 50 on the Call side for October 24 expiry:

On the Call side, the Nifty 50 strikes between 24,500 and 24,700 have seen Open Interest addition for this Thursday’s weekly expiry.

Nifty 50 on the Put side for October 24 expiry:

On the Put side, the Nifty 50 strikes between 24,200 and 24,400 have seen an addition in Open Interest for this Thursday’s weekly expiry.

Fresh short positions were seen in these stocks on Tuesday, meaning a decline in price but an increase in Open Interest:

These stocks saw unwinding of long positions on Tuesday, meaning a decline in both price and Open Interest:

These are the stocks to watch out for ahead of Wednesday’s trading session:

• • Bajaj Finance: Net Interest Income up 22.8% year-on-year to ₹8,837.7 crore. Net profut aided by one-time gain of ₹2,544 crore net of issue expenses from sale of stake in Bajaj Housing Finance. Gross NPA at 1.06% from 0.86%. Net NPA at 0.46% from 0.38% in June. Provisions up 77% to ₹1,909 crore and up 13% sequentially. Calculated NIMs at 9.45% from 9.92% last year and 9.45% in June.

• • M&M Finance: Net Interest Income up 19.3% from last year to ₹1,963 crore. Net profit up 57.1% to ₹369.47 crore from ₹235.1 crore. Gross NPA at 3.83% from 3.56% in June. Net NPA at 1.59% from 1.46% in June. Provisions up 57% sequentially to ₹703.5 crore.

• • Persistent Systems: US Dollar revenue up 5.3% to $345.5 million. Constant Currency revenue growth at 5.1% from the June quarter. Revenue in Rupee terms up 5.8% to ₹2,897 crore. EBIT up 5.8% to ₹406.2 crore. EBIT margin flat at 14%.

• • Adani Green Energy: Net profit up 38.8% to ₹515 crore. Revenue up 27.6% from last year to ₹3,055 crore. EBITDA up 24.8% to ₹2,272 crore. EBITDA margin at 74.4% from 82%.

• • Chennai Petro: Net loss of ₹633.7 crore from net profit of ₹1,195 crore. Revenue down 27% to ₹12,086.4 crore. EBITDA loss of ₹674.7 crore from positive EBITDA of ₹1,804.5 crore. EBITDA margin at 10.9%.

• • GMDC: Net profit up 71.5% to ₹128 crore. Revenue up 55% to ₹593 crore. EBITDA at ₹141.3 crore from ₹53 crore last year. EBITDA margin at 28.8% from 13.8% last year.

• • Olectra Greentech: Net profit of ₹47.7 crore from ₹18.6 crore last year. Revenue up 70.5% to ₹523.7 crore. EBITDA at ₹81.2 crore from ₹40.6 crore last year. EBITDA margin at 15.5% from 13.2% last year.

• • Can Fin Homes: Net Interest Income up 7.3% from last year to ₹339.8 crore. Net profit up 33.8% from last year to ₹211.5 crore. Gross NPA at 0.88% from 0.91% last quarter. Net NPA at 0.47% from 0.49% last quarter. Provisions down 81% from last year and 43% sequentially to ₹13.74 crore.