Many stocks in extreme oversold territory

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Where are We?
During the week, our markets had a good rollercoaster ride, which must have kept the traders on their toes. First half looked very ominous as we saw index sliding below the important psychological level of 10,500. Clearly, it was hard to believe we would reclaim the 10,500 mark immediately on the following day after seeing Wednesday’s massive selloff towards 10,400. In fact, the way Friday’s session panned out, many traders trapped in the recent onslaught finally had something to cheer for. A good stock specific relief rally towards the fag end of the week resulted into the reclaiming of the 10,600 mark.

What is in Store?
Now, the biggest question is whether markets are done with the correction or this is just a temporary bounce back? In our sense, recently there was a massive stock specific destruction seen in the market and in this course of action, so many individual counters entered an extreme oversold territory. Hence, some kind of breather was overdue in these names. Last couple of days’ rally was mainly a short covering move in these beaten down counters. It may continue also for a while but we believe that this is just a short-term breather and at higher levels the index is likely to face resistance in the zone of 10,650 – 10,720.

What could Investors Do?
For the first half of the week, the ideal strategy would be to focus on individual stocks and look to liquidate positions at higher levels. On the lower side, the immediate support is seen in the range of 10,560–10,500; but if we have to take slightly broader view, we will not be surprised to see index retesting 10,400–10,300 levels. Further, it would be too early to take this call, but we believe that the ‘Pharma’ sector is in process of bottoming out. Hence, one can look to accumulate marquee names within this space.