What should investors do with RIL stock? Rahul Sharma answers

"What that translates into a very small bounce back that can come, that small bounce back could be anywhere in the vicinity of 24,650 to 24,700, post which we are expecting another round of selling pressure which can take the Nifty downwards towards 24,200, even 24,000 is very much on the cards," says Rahul Sharma, JM Financial Services.

How do you see the market movement right now? Do you believe that it is a base formation that is in play happening for both the benchmark indices because it is quite difficult these days to actually build confidence on the kind of recovery that we are seeing?
Rahul Sharma: Nifty definitely has been difficult in this month given the kind of correction that we have seen. So, we all know the reasons why it is happening, but the question on everybody's mind is where exactly do we see the capitulation happening? Now, one thing that we have in mind is in terms of the very short term, sort of in terms of the hourly charts, we are seeing markets are heavily oversold and there is divergence that is building on the hourly charts of Nifty as well as some of the other key indices.

What that translates into a very small bounce back that can come, that small bounce back could be anywhere in the vicinity of 24,650 to 24,700, post which we are expecting another round of selling pressure which can take the Nifty downwards towards 24,200, even 24,000 is very much on the cards. So, this is clearly a market which is in bear grip and bounce backs are utilised as selling opportunities. The texture of the market continues to be bearish.

Today, we are seeing some green shoots happening especially in the banking space. So, Bank Nifty is something which has already started the bounce back, Nifty may follow suit and maybe we may see the bounce back happening in the Nifty probably tomorrow or on Monday session. So, net-net, the best thing to do is take one or two days at one point in time because that is the kind of volatility that we are witnessing. And as far as the October series is concerned or the October expiry is concerned, there is a high chance that we see a bottom formation being placed or at least the capitulation happening in the next week which is where we have the monthly expiry coming up for the Nifty Index.

Other than the banking index, any other sectoral indices that look attractive on technical front?
Rahul Sharma: So, as of now we are primarily focusing on the largecaps, we are not touching midcaps and smallcaps in any way. In fact, we are just waiting for the Diwali picks to be released primarily for this reason and from the largecap space, the best thing to do is build a diversified basket of around 8 to 10 stocks.

We are expecting that something like chemicals is something which has reversed on the medium-term chart, so chemicals is something that we are liking.

As far as index is concerned, IT is another saving grace where the correction has not been deep and once the market stabilises, we are expecting smart bounce back happening in this space.

Apart from that, it is metals, which seems like the correction seems to be over and a bounce back is on the cards at any point in time, so the key select sectors where we are keeping our eyes on, but the best thing to do is build a diversified basket of the Nifty 50 stocks where stocks have reached their downside targets or essentially trading close to the 200-day EMAs and the risk reward is very favourable in them and just buy and hold on to these stocks for the next two to three months.

One stock specific question on Reliance Industries. The stock is down nearly 17.5% from its recent high of around Rs 3200 that we had seen. It is just 3% away from entering the bear territory. It is below its all DMAs. The RSI is below 30. Any kind of an upside that you are expecting when it comes to Reliance Industries?
Rahul Sharma: If you rewind a bit, ever since this October series has started, in fact, from the 1st of October the stock has attracted a lot of shots into the system. Reliance futures open interest continues to be at a decadal high or I think almost nine years of timeframe we have not seen such huge open interest or open positions in the future segment.

So, these shots are still there in the system. What could cause them to cover their shorts, either there is proper reversal on the Nifty which causes this short covering or secondly, it could be the monthly expiry which is where we are heading into.

So, it has to be the chances of happening the monthly expiry is more and once that happens, we expect the shorts to come out of it and unless that happens, any bounce back could be as a shorting opportunity in Reliance.

And speaking of levels, 2600-2550 is where the long-term supports come for this stock. And like you said, it has already entered into bear territory, so it will need a magical move of sorts to challenge these shorts and at the same time reverse the market trend as well. So, very tough times, especially if you are a trader in Reliance. But if you are an investor and if you have a macro picture, if you have like a 6-12-month timeframe, these are good times to start chipping in, accumulate this stock for delivery. We feel that the risk reward is increasingly getting favourable in this stock if you have a slightly more longer timeframe, time horizon.