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Nifty looks set for a pre-Budget rally: Analysts – The Economic Times

The underperformance of broader indices continued for another week. Technical analysts are, however, expecting a pre-Budget rally with a weak dollar and India VIX below 15 levels.

If the Nifty crosses and sustains above 18,200 level, it would take the index towards 18,500 levels, analysts said. HDFC Bank, TCS, L&T,

, , Persistent, ONGC, , and Vedanta are some of the stocks that look bullish on charts, according to analysts.


Where is the Nifty headed?
The formation of higher highlow after six weeks of decline confirms a pause in downward momentum ahead of the Union Budget. Despite global volatility, Nifty has made a strong base of around 17,800 over the past four weeks and has undergone shallow retracement. We expect the index to witness a pre-Budget rally and gradually head toward 18,500. Any cool-off would find its feet around 17,800. The dollar index extended a decline below 102 and remained in a strong downtrend. Historically, a weak dollar leads to higher foreign inflows and is positive for Indian equities structurally. India VIX dipped 5% and settled the week below 15 for the fourth week, indicating low-risk perception among market participants.
What should investors do?
Structurally, the index has been undergoing a slower retracement over the past seven weeks, wherein it retraced 50% of the preceding nine weeks’ rally (16,748- 18,888), indicating inherent strength. Sectorally, infra, IT, PSU, and BFSI are preferred. HDFC Bank, TCS, L&T, and UltraTech Cement look good for 5-7% upside; while in midcaps, Sterlite Technologies, Persistent, , , NCC, PNB, look good for 8-10% upside.

Where is the Nifty headed?
Nifty stands at the strong polarity support, failing to hold which the index is likely to see further correction towards the 17,000-17,200 zone. Only a sustained close above the 18,300-18,350 zone is likely to trigger bullish momentum for fresh life highs but continuing below the same is likely to add further weakness. Even on the weekly scale, there is visible range contraction which indicates a sharper directional move is on the offing.

What should investors do?
Seasonally January is a weak month. With the Union Budget and ongoing result season, participants will likely be nimble and stick more towards swifter entries and exits in sector-specific bets. As an investor, the larger degree charts indicate strength, and any dips towards 17,000- 17,200 should be bought into. One can look at stocks like

, , Bharat Dynamics, and , which are exhibiting relative strength, while one can see further weakness in names like , , AU Bank, , and Voltas


Where is the Nifty headed?
On weekly chart, the index has formed a Doji candlestick, indicating indecisiveness. Chart pattern suggests that Nifty has been stuck in a range of 17,700-18,200 for the last four weeks, if the index crosses and sustains above the 18,200 level, it would witness buying, which would lead the index towards 18,300-18,500 levels. However, if it breaks below the 17,900 level, it would witness selling, taking the index towards 17,700-17,500.

What should investors do?
One can focus on stocks like L&T, Siemens, HDFC, ONGC, Coal India, Vedanta,

, and Persistent. Traders ahead of the Budget can deploy the Calendar Spread strategy which involves selling the current week at-the-money straddle and buying the following week at-the-money straddle to take advantage of the short-term theta decay of the current weekly expiry with an increase in vega. One needs to sell the January 25 expiry one lot each of 18,050 Call and Put at Rs 94 and Rs 90, respectively. Simultaneously buy February 2 expiry one lot each of 18,050 Call and Put at Rs 199 and Rs 175, respectively. The net debit of the spread will cost Rs 9,500. It’s not possible to determine exactly the breakeven points of the strategy due to two different expiries.