Credit Source
By Dharmesh Shah
Equity benchmarks snapped the two weeks losing streak and concluded a truncated week on a positive note as Nifty settled at 17916, up 1.4%. The broader markets relatively outperformed as Nifty midcap and small-cap rose 3.2% and 2.5% respectively. Sectorally, all major indices ended in green led by IT, Metal, PSU Bank, realty.
Nifty Technical Outlook
– The Nifty started the week on a positive note and retested the psychological mark of 18000. However, upward momentum remained short-lived as profit booking from higher levels dragged Nifty below 17800 mark. As a result, the index formed an inside bar confined within last week’s sizable bear candle, indicating a breather after two weeks of sharp decline (18604-17163). In the process, Nifty midcap and small-cap indices relatively outperformed
– The lack of faster retracement on either side signifies prolongation of ongoing consolidation (17600-18200) amid stock-specific action as we do not expect Nifty to breach the October low of 17500. The bouts of secondary correction after a 20% rally is a common phenomenon. In the current scenario, the index is undergoing secondary correction after a 20% rally seen over the past three months (15513-18604) which will make the market healthy.
– Hence, the ongoing corrective phase should not be construed as negative, instead, dips should be capitalised on to build a quality portfolio over medium term.
– The Nifty midcap and smallcap indices have approached their price/time wise maturity. As both indices maintained the rhythm of not correcting for more than 9-10% and arresting intermediate correction within three weeks.
– Currently both indices are forming a higher base above 50 days EMA which has been held since June 2020, highlighting inherent strength. We believe, ongoing consolidation would mark broader market healthy. Hence, focus should be on accumulating quality midcaps to ride next leg of up move
– Sectorally, BFSI, Capital goods, Infra & Realty are key outperformers while Auto, Metal present favourable risk-reward setup
– In large caps we prefer SBI, Bajaj Finance, L&T, Ultratech Cement, DLF, Tata Motors, while in Midcaps we like ABB, Bank of Baroda, Federal bank, PVR, Phoenix Mills, Trent, Relaxo Footwears, Indian Hotels, Jindal Stainless, Orient Cement, Action Construction
– Structurally, the formation of higher peak and trough on the larger degree chart signifies robust price structure that makes us believe that ongoing breather would find its feet around 17500 as it is confluence of:
a) 50 days EMA is placed at 17585
b) October 2021 low is placed at 17452
Bank Nifty Outlook
– The Bank Nifty traded in a range and closed the truncated week on a positive note by gaining 1.2%. The weekly price action formed a Doji candle which remained enclosed inside previous week price range signaling a lack of follow-through to previous week sharp decline signifies supportive effort around the 50 days EMA placed around 38400 levels
– Going ahead, we expect the PSU banking stocks to continue with its outperformance while the Bank Nifty to continue with its healthy consolidation in the broad range of 38400-40500.
– We believe the current breather should not be seen as negative instead it should be used to accumulate quality banking stocks for the next leg of up move
– The weekly stochastic has cooled off from the overbought territory and is approaching its previous major low of August 2021 thus signaling a range bound consolidation in the index in the coming week
– The short term support base for the index is placed at 38400 levels being the confluence of:
a) 61.8% retracement of the recent up move (36876-41829)
b) the upper band of the recent seven months range breakout area
c) the rising 10 weeks EMA is also placed at 38295 levels
(Dharmesh Shah is the Head – Technical at ICICI Direct. Please consult your financial advisor before investing.)
ICICI Securities Limited is a SEBI registered Research Analyst having registration no. INH000000990. It is confirmed that the Research Analyst or his relatives or I-Sec do not have actual/beneficial ownership of 1% or more securities of the subject company, at the end of 22/04/2021 or have no other financial interest and do not have any material conflict of interest. I-Sec or its associates might have received any compensation towards merchant banking/ broking services from the subject companies mentioned as clients in preceding 12 months
