Downside appears limited if Nifty closes below 5150: Analysts

The 50-share Nifty index slipped to its 2-month low on Thursday, breaking key technical support levels of 5150 on weak global cues.

"Despite Nifty momentarily breaching the 5150 mark on an intra-day basis today, the outlook for Nifty remains positive. Even if Nifty closes below the 5150 mark, the downside appears limited to 2-3%," said Vinit Pagaria, VP - Investment Strategies, Microsec Capital Ltd

Nifty has been holding on to the crucial support band of 5150-5170 since the last few days. It tested a low of 5174.90 on Monday, 5184.65 on Tuesday and 5169.60 on Wednesday.

The 50-share Nifty index was down 0.9 percent at 12:40 hrs, breaking below the 200-day moving average for the first time since Feb. 1.

Some of the momentum oscillators like stochastics are in the oversold territory and indicate that a sharp upside is possible from here on in the short term.

"We continue to believe that traders should go long between 5000 and 5250 with upside targets of 5400, 5630 and finally 5900," added Vinit.

Microsec Capital advises traders to write Nifty April Put options of strike 5100 and strike 5200.

According to analysts, expiry of March derivatives contracts today and the end of the fiscal year at the end of the week is also adding to the volatility.

"Beginning today, it is a new settlement for the FIIs in the sense that whatever they buy now will go into the new financial year. In case FIIs do press the gas on the downside, the domestic market as well as the retail investors may not be able to absorb the selling pressure," said VK Sharma, Head of Business, Private Broking & Wealth Management, HDFC Securities.

"Chances are the markets would crash and we might see Nifty going down to levels below 5000," added VK Sharma.

National Stock Exchange data showed provisional net purchases of Rs 148 cr ($29.15 million) on Thursday, bringing total net sales for the week to about $39 million.

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Buy Axis Bank, says VK Sharma

Buy Axis Bank, says VK Sharma of HDFC Securities.

Sharma told CNBC-TV18, "I think the weakest in the banking sector seems to be State Bank of India where fundamentally we would expect one more quarter of the Chairman picking up the broom and cleaning some more act. So from that perspective there is more to follow fundamentally.”

He further added, “If you look at the position from derivative perspective this is the only stock in which we have seen 78% open interest addition and this is still in the new settlement, it continues to be the largest company having the open interest at 1,593 crore, more than Reliance. So from this perspective there is lot of shorts that are still in the system and it needs to come out. So this is one sector, this is one company which could lead the sector down although you have seen buying coming in the likes of Axis Bank but although we have a buy call for a trader, one can buy Axis, one can buy 1,200 calls at Rs 40 and hope to sell at Rs 60.”

“But this is a function of where open interests are added on the last day. So we are not very sure, we don’t take what movement that happen on last day as sacrosanct so that will be suspect. So keep a stop loss of around Rs 30 in this.”