Technical View: Is broader market rally here to stay?

SEBI announcement to rationalise the rules on trading of thinly-traded stocks has majorly has boosted interest among investors in these counters

Broader markets have rallied despite the sluggishness in key benchmark indices off-late. BSE Mid-caps and small-cap indices started 2014 on a robust note with both the indices touching their highest levels in 10-months. But is the momentum likely to continue or is the uptrend likely to wither away and die?

Equity market regulator Securities and Exchange Board of India's (Sebi's) 19 December announcement to rationalise the rules on trading of thinly-traded stocks (majority of illiquid stocks fall in the mid-cap and small-caps category) has majorly boosted interest among investors in these counters, analysts say.
 
Analysts describe the upmove as a trading opportunity and advice to maintain strict stop losses as a secular rally in these counters will require a robust economy that is powerful enough to revive the sagging demand environment which will boost the prospects of these medium to small companies.

 

 
Devangshu Datta, Techincal Analyst and market expert tells what he makes of rally in small-caps and mid-caps and what are his top picks from the packs.  
 
Both the S&P BSE mid-cap and small-cap indices have outperformed the market by surging 29% each from their August lows, as compared to 18% rise in benchmark index. The S&P BSE Sensex had touched a record high of 21,326 on December 9.
 
However, both these indices are still far away from their all-time highs touched in 2008. The S&P BSE small-cap index touched high of 14,239 and mid-cap index of 10,246 during January 2008.

 
SmartInvestor : After a lacklustre session market has started booming once again. Is it too early to say that volatility will be norm in 2014 too?
 
Devangshu Datta : Yes, can't make a call on that because due to the political situation right now, volatility could be very high
 
SmartInvestor : Do you see Nifty slipping below 6300 anytime in near term. What are the levels to watch on benchmarks?
 
Devangshu Datta : Support/ resistance could be placed at roughly 50-pt intervals. Keep stop loss long positions at 6300 (futures) and if the stop is broken, ext reliable support will be at 6250 and then at 6200, etc. Right now, the trend seems bullish. But there's resistance at 6400 and then at 6450 (futures prices)

 
SmartInvestor : Among heavyweights, financials are leading currently. How are HDFC twins, Axis bank placed technically?
 
Devangshu Datta : Axis Bank- stop loss long positions could be placed between 1300-1305. HDFC’s stop loss at between 800-802. HDFC Bank’s stop loss could be placed at 665-668.
 
SmartInvestor : Your take on Bank Nifty?
 
Devangshu Datta : I am bullish on Bank Nifty but a bout of profit booking could pull it back till 11550 (futures price). It could face upside resistance above 11670. So there's significant risk in taking a long position.
 
SmartInvestor : Small-caps have been outperforming for quite some sessions now? What is your outlook there?

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