Market volatility calls for selective trading, focus on PSU stocks: Rahul Sharma

The Indian stock market is in a tough patch as the Nifty index is hovering around a key support level of 25,650 after three days of positive momentum. After breaking significant resistance levels earlier this week, the market is now consolidating amid mixed sector performance.Rahul Sharma of JM Financial Services noted, “Right now, we are actually at a support level. 25,650 is where the support for the Nifty is. It is a cluster of moving averages. The 5, 20 and 50 day moving averages are also close to each other and I feel if we manage to gain support for the second half at this point today, there could be a recovery in the intraday as well.”

However, he warned that the market has seen brutal selling since the morning. “If 25,650 breaks, it will call for another round of weakness, which means another 100 points could probably be taken away in a day or two. The best thing you can do in such a market is be a day trader and not take positions overnight. There is also a geopolitical scenario looming with Iran and the US, so there could be a strong reaction once that happens.”

Among the sectors, PSU banks are emerging as the preferred player. Sharma pointed out, “What looks like a refuge in this market is the PSU banks. They have done well and continue to look good on the charts. Punjab National Bank, PNB, is our best bet in this kind of market. We believe the stock is ready to move towards the targets of 140. You can buy PNB at these levels with a stop loss at 122 and we believe that the overall strength of PSU banks should continue regardless of the volatility in the Nifty.”

Sector trends have been uneven today, with the real estate sector bearing the brunt of the selling pressure, down around 2%. The FMCG, auto, energy and financial sectors also witnessed mild declines. On new entries, Sharma said, “If anyone has to bet on the sector view, it has to be the public sector companies. The PSE space is still quite robust. You can choose to play with top tier names like NTPC and Power Grid, or there is an ETF called the CPSE ETF, which can capitalize on this potential upside move in the next few trading sessions.”

He added that the market remains narrow and investors should be cautious. “Today we see that it is back to the support level, maybe half a percent from here and the risk reward would get even better. As far as the real estate sector is concerned, it has been a struggle in every possible way… It is better for Nifty to eventually give us a break above 26,400 so that the rest of the market can stage some kind of recovery from here and make a big progress. Be very selective at this point. PSU banks and public sector companies are the go-to sectors that do that. If we keep the Nifty index below 25,650 points in today’s session, there could be another 100-point sell-off that we could see in the Nifty index today or tomorrow.”