Sharma was speaking a day after a sharp selloff in the market triggered by negative news from the insurance sector.
Oil prices are already above $100 a barrel, and any further rise could put additional pressure on the Nifty, Sharma said.
“We have oil prices which are already boiling above $100 per barrel and any further escalation over that front could mean a direct correlation of the Nifty heading lower in the coming week,” he said.
The other potential catalyst is the second-quarter earnings season, which begins in mid-October.
“Q2 earnings could bring in some cheer possibly,” Sharma said. But unless there is a meaningful change in either oil prices or earnings, he expects the market to remain a “sell-on-rise” market, where investors use rallies to reduce positions.
Nifty 23,070 is the key level
Sharma said 23,070 is an important level for the Nifty to hold.
“Anything below 23,070 means that we have gone on to hit a new low,” he said. A decisive close below that level could open the way towards 22,500 and potentially lower levels, he added.
The Nifty is heading towards its seventh consecutive weekly decline, a relatively rare losing streak. Sharma noted that the last comparable stretch came in 2008, when the index fell about 22% during the period, compared with a decline of roughly 6% in the current run.
A rebound is possible if the Nifty holds around 23,000, Sharma said, although he does not expect such a bounce to signal a broader trend reversal.
On the upside, he pointed to around 24,200, corresponding to the 61% Fibonacci retracement level, as the point at which the recent decline would be fully reversed. He described that level as a distant possibility for now.
Small and midcaps join the selloff
The selling has also spread beyond large-cap stocks to the small- and mid-cap segments that had held up relatively well during the market’s recovery since April, Sharma said.
Small- and mid-cap stocks had driven much of the market’s recent gains and are now contributing to the decline, he said. Pharma is the main sector he sees bucking the broader trend.
Within pharma, Sharma highlighted Divi’s Laboratories and Laurus Labs.
He expects Divi’s Laboratories to move towards ₹10,000 and said buying interest has consistently emerged during declines in Laurus Labs.
Sharma also highlighted Eternal, the food-delivery company, saying the stock continues to form higher highs and higher lows. He said its predominantly domestic business gives it relatively limited exposure to global geopolitical risks and expects the stock to reach ₹400 by the end of the year.
Tata Steel, RBL Bank among stock picks
Among banking and metals stocks, Sharma favours Tata Steel and RBL Bank.
Tata Steel has been consolidating between ₹180 and ₹190 and attempted a breakout over the previous two sessions, Sharma said.
“The risk-reward is very much favourable for a recovery up to ₹210 on the upside,” he said, while suggesting a stop-loss at ₹182.
RBL Bank, which was trading near ₹400, has historically seen relatively shallow corrections, Sharma said. He set a target of ₹475 for positional traders.
For the full interview, watch the accompanying video
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