As market turns rangebound, will action shift to midcap and smallcap stocks?

Nifty is back to 14,950. What is in store for us now? Would we have to wait for Monday morning to see what sort of cues we pick up from global markets?
Yes, that is likely going to be the trend for the index. We will need to see what happens across the globe and specifically what happens to the US markets, which will probably lead to a fresh round of triggers for our markets as well. This week has been a bit choppy. At the closing, we could say that the Nifty has closed in a positive territory. The Bank Nifty also managed to snap back the two-week losing streak.

But then it has not been a hale-hearty week for the index traders because there was some evidence of fresh shorting or short built up on the indices as well. That is going to be one tricky aspect to look out for. We have broken back below the 15,000-mark. So these psychological round numbers tend to act as very strong support and resistance zones. The fact that we have closed below that 15,000-mark also acts as a bit of a hindrance.

Bank Nifty, too, continues to drop and there has been renewed weakness into the high beta pockets in the midcap names. Specifically on Friday, what was more categorically seen as a pattern was the selling in midcap and smallcap stocks. So whether it is the first round of profit booking or whether it is fresh shorting, we will get much more clarity over the next couple of days. But yes, looking at the global set up and looking at the way our markets also shaved off the gains, it could be indicative that there could be some bit of more downward drift into the indices.

How are you reading into the broader market movement for the week gone by? The midcap index has managed to extend its gains for five straight weeks on the trot; same for the smallcap index although Friday was a very wobbly session. Do you believe that outperformance within the broader universe is here to stay?
The midcaps and smallcaps tend to do pretty well when the market or the index goes into a range. If you look at the last four weeks of cumulative price action for the Nifty, we are ambling into a 1000-point range, with 14,500 as support and 15,400-15,500 level as resistance. That has been the clear trend for the index in the last three to four weeks.

In that kind of backdrop, if you look at the performance of the midcap and smallcaps in the last three-four weeks, there has been a slight pickup of pace into the way the midcaps and the smallcaps have behaved. Except for Friday, there were so many stocks that moved up 15% or 20% higher because at that time the index remained in a bit of a range. So we were seeing action in specific stocks.

If the benchmark indices reverse the course and if Nifty and Bank Nifty get into a bit of a downward drift, then there could be a possibility that the midcap show, too, gets into a profit booking mode. On Friday, we saw some glimpse of profit booking into the midcap names and we saw some of the stocks moving higher at the start of Friday’s trading session. However, in the second half, the picture was completely different. We saw a lot of profit booking coming into the midcap and smallcap end. So that is going to be the key. The midcaps and smallcaps have done pretty well in the last four weeks, but if the benchmark indices go into a corrective wave, then there is a possibility that strong upside and uptick that we had seen for midcaps and smallcaps would be capped and you would see a round of profit booking into this space as well.

What is tradable come next week, what are your picks?
I have a couple of buy calls on the stocks that are more or less defensives or contrarian to the market theme. First is a buy on

. The stock is forming an inverse head and shoulder pattern on the daily charts and I would expect that the stock that did pretty well even on a turbulent day like Friday and Thursday shows signs of a bit of a contrarian nature. On that backdrop, I would suggest a buy on ICICI Lombard. Short-term targets could be kept at Rs 1,555 with a stop loss of Rs 1,470.

The second stock is from the PSU pack. It has got to do with a breakout that the stock had shown last week and the week prior to that. The stock is Coal India. Now Rs 145-150 zone was a huge hurdle zone for

and it managed to break past that level with a strong set of volumes and now the stock is just about consolidating above the Rs 150 zone, which means that Rs 150 level now could be a strong support for Coal India. I would suggest a buy on the stock, expecting that the PSU rally for specific names continues and the stock would go into a stronger uptrend in the near term. Buy Coal India for a target of Rs 165. Stop loss could be kept at Rs 145.