By Dharmesh Shah
The equity benchmark index staged a roaring comeback last week as bulls asserted control. The Nifty settled the week at 16238 with highest weekly gains 3% since mid-May 2020. Broader market indices relatively underperformed as Nifty Midcap gained 0.5% while small cap lost 0.8%. Sectorally, all major indices ended in green led by financials, IT.
Nifty Technical Outlook
– On expected lines, Nifty logged a resolute breakout from two months consolidation (15950-15500) and achieved our earmarked target of 16300. The weekly price action formed a sizable bull candle carrying higher high-low, indicating acceleration of upward momentum that augurs well for next leg of up move
– Going ahead, we expect index to extend its northbound journey and gradually head towards our revised target of 16600 in the coming month as it is 138.2% extension of mid June rally (15450-15915) projected from June high of 15915 is placed at 16575. Thus temporary breather from here on should be capitalised to accumulate quality stocks amid progression of Q1FY21 result season. Our constructive stance is based on following observations:
a) The Nifty and Bank Nifty indices have witnessed a faster pace of retracement, highlighting inherent strength that bodes well for extension of ongoing up trend.
b) Indian benchmarks are expected to accelerate outperformance against Developed and Emerging market peers as signaled by fresh breakout on relative ratio chart.
– Our preferred sectors are BFSI, IT & Telecom, Metals, Realty & Infra, while consumption and Auto offer favourable risk-reward at present
– On the stock front, in large caps we like Bharti Airtel, TCS, JSW steel, Kotak Bank, Tata Consumer, Titan, Tata Motors, while in midcap space, we prefer, Graphite, Ashok Leyland, Gabriel India, Zensar Technology, Persistent Systems, Tata Chemicals, Mahindra Life, Sail & Havells India
-The Nifty midcap and small cap indices underwent profit booking after more than 10% rally seen over past six weeks. We believe, extended breather from here on would help broader market indices to cool off the overbought conditions make market healthy
– Structurally, the formation of higher peak and trough on the larger degree chart makes us confident to revise support base upward at 15900, as it is confluence of:
a) 50% retracement of July-August rally (15513-16349), at 15930
b) as per change of polarity concept earlier resistance of 15900 would now act as key support
Bank Nifty Outlook
– The weekly price action formed a strong bull candle with a higher high-low signalling resumption of up move as the index generated a breakout above the last eight weeks’ consolidation range (35800-34000).
– Going ahead, we expect the index to maintain its current up trend and gradually head towards the 36600 levels in the coming weeks being the confluence of the previous major high of March 2021 and the 138.2% external retracement of the current breather (35810-33908)
– Index on expected lines maintained the rhythm of not corrected for more than two consecutive weeks as seen since May 2021. It witnessed a strong rebound and generated a faster retracement of its last falling segment as preceding 10 sessions decline (35977-34115) was completely retraced in just three sessions. A faster retracement of the last falling segment in less than half the time interval signals robust price structure
– Structurally, the formation of higher peak and trough on the larger degree chart makes us confident to revise support base upward at 34500 as it is confluence of:
a) 80% retracement of the current up move (34115-36219) placed around 34500
b) rising 20 weeks EMA placed around 34280 levels
c) The last week low is also placed at 34588 levels
-Among the oscillators, the weekly 14 periods RSI has generated a buy signal moving above its nine periods average thus validates positive bias
(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