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IT may be among the first to bounce back; top 3 trading ideas for the month: Anand James

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“As recession fears recede, the IT sector may be among the first to bounce, given the pounding it had received in the first wave of selling,” says Anand James, Chief Market Strategist at .

In an interview with ETMarkets, James, said: “From a domestic theme, we favour banks with the expectation of expansion in the loan book” Edited excerpts:

A volatile week for Indian markets but bears took control and pushed benchmark indices below crucial support levels. What led to the price action?
Indian markets did brave the storm on Wednesday, lifting off remarkably after a gapped-down opening, enticing the view that we are entirely decoupled.

This argument is a bit of a stretch, came to the fore in the subsequent days, when Indian stocks also cracked after pressure in the US stocks persisted.

More importantly, this was the fourth attempt this year, when the Nifty50 has forayed above 18000 in search of a new record peak, but only to face rejection trades.

This time around, the twin rate decisions scheduled ahead from the US as well as India were too big an event risk to ignore while on the hunt for a newer peak, thus justifying the profit booking.

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What should be investors’ strategy ahead of the US Fed meeting? Time to hedge?
Clearly, risk-off trade is in play, and this has been aggravated by a higher US inflation reading as well as other macros including recent jobless claims pointing to a healthier economy that can withstand a hawkish regime.
Incidentally, the probability of a 50-bps rate hike is completely off the table, and the possibility of a 100-bps hike has risen to 24% from zero, a week back.

As recession fears recede, the IT sector may be among the first to bounce, given the pounding it had received in the first wave of selling.

From a domestic theme, we favour banks with the expectation of expansion in the loan book.

Sectorally, power and metal saw buying action. What led to the price action?
Power stocks continued its uptrend this week too on the recent Govt. decision to extend the deadline by 2 years for the implementation of Flue Gas Desulphurisation (FGD) equipment norms in various categories of power plants.

Steel stocks too appear to have been buoyed by the potential removal of recently imposed export duty.

What is powering the rally in which has rallied by about 50% till Thursday? What should investors do – buy now or book profits?
Tata Investment has had a jaw-dropping rise last week. It is a tough act to follow. The default approach would be to take some money off the table.

But, with the reversal pattern yet, despite markets tanking on Friday, and more importantly, considering the fact that a fresh entry into such stocks might be difficult later, it would be better to let profits run, with downside risk level placed at either 2691 on a closing basis, or at 2419, if pocket and patience allow.

Your 3-4 trading ideas for the next 3-4 weeks?
Here is a list of top trading ideas:

: Buy| LTP Rs 1078| Target Rs 1240| Stop Loss Rs 1010| Upside 15%
After facing a year-long decline, the stock had found a bottom in the month of June around 940-950 zone from where a reversal is underway.

On the weekly chart, the stock has broken above the

SAR level of 1036 backed by big volume seen for the first time since March 22.

On the monthly charts, it had bounced off from the 61.8% Fibonacci level of 920 in July and the Moving average convergence divergence (MACD) has shown bearish exhaustion hinting at more buying to happen in the near term.

Hence, we recommend traders to buy the stock now for a target of Rs 1240, and a stop loss can be placed below Rs 1010.

: Buy| LTP Rs 270| Target Rs 300| Stop Loss Rs 254| Upside 11%
After witnessing profit booking from the all-time made in December 2021, the stock has retraced close to 61.8% Fibonacci level of 254 and has made an inverted hammer candle pattern on monthly charts hinting at a possible continuation of the bounce back.

Also, the monthly MACD has seen bearish exhaustion giving strength to our reversal expectations.

: Buy| LTP Rs 215| Target Rs 250| Stop Loss Rs 199| Upside 16%
After moving within a 30-point trading range in the monthly time frame, the stock has recently broken out. Also, the monthly MACD has broken above the signal line along a Parabolic SAR breakout confirming the bullish momentum.

We are going to see a move aiming at 238 and 250 in the near term.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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