By Dharmesh Shah
Equity benchmarks snapped past two weeks’ winning spree and concluded the previous week on a subdued note. The Nifty dropped 1.2% to settle for the week at 18115. The broader markets underperformed the benchmark as Nifty midcap and small-cap gained slumped ~5%, each. Sectorally, financials remained outlier while consumption, metal, realty underwent profit-booking.
Nifty Technical Outlook
– The Nifty started the week with a positive gap and achieved our target of 18600. However, profit booking emerged from all time high levels that dragged the index toward the psychological mark of 18000. The weekly price action formed a dark cloud cover candle that pared most of last week’s gains, indicating breather after the 1150 points rally seen over past 10 sessions. The Nifty midcap and small cap indices underwent profit booking after witnessing 25% rally in past two months that hauled weekly stochastic in overbought territory.
– Going ahead, we expect buying demand to emerge in the 18000-17800 range as we do not expect the key support threshold of 17800 to be breached. Key point to highlight during the ongoing corrective phase is that the index has been retracing recent sharp up moves as it filled the three positive gaps seen during last week. We believe such price action would make the market healthier. The ongoing sectoral churn, pricing in the Q2FY22 earnings which is a healthy sign for structural up trend, wherein Banking, capital goods and realty continued to relatively outperform. Thus, any dip from hereon towards 17800 should be capitalised on to accumulate quality stocks amid progression of Q2FY22 result season. Meanwhile, last week’s high of 18600 would act as immediate resistance.
– Since May 2020, the Nifty midcap and small cap indices have not corrected for more than 9-10%. In the current scenario both indices have already corrected 7% from their lifetime high, indicating limited downside. Thus we expect the index to maintain the same rhythm by arresting ongoing corrections by a couple of percent and undergo higher base formation in the coming week.
– Amongst sectors, BFSI, Capital goods, auto, realty to relatively outperform in the coming week. In large caps we prefer SBI (State Bank of India), Axis Bank, Housing Development Finance Corporation, L&T, Tata Motors, Tata Steel, DLF while in midcaps we prefer Indian Bank, Federal Bank, KEC, Sundaram Finance, TCNS Brands, TCI, Gateway Distriparks, Prestige Estates, Mahindra CIE, Inox Leisure, V-Mart.
– 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 17800 as it is confluence of:
a) 80% retracement of recent up move (17613-18604)
b) past two week’s low is placed at 17839
Bank Nifty Outlook
– The Bank Nifty on expected lines continues to outperform the benchmark indices, it has shown resilience and closed at fresh all-time high, despite profit booking in the benchmark index. The weekly price action formed a bull candle with a higher high-low signaling continuation of the uptrend as it closed firmly above the psychological mark of 40000 levels.
– Going ahead, we expect the Bank Nifty to continue its outperformance over the Nifty and rally higher towards 41600 levels as it is the 123.6% extension on the previous up move (34817-38377) as projected from the recent major trough of 36876.
– Index has completely retraced its previous week three sessions breather in just a single session highlighting resilience and continuation of the up move
– Structurally, the formation of higher peak and trough in all time frames signifies robust price structure, that makes us confident to revise support base upward at 39200 levels as it is confluence of:
a) 38.2% retracement of the current up move 36877-40587 is placed around 39200 levels
b) The last week low is also placed around 39300 levels
c) Weekly stochastic remain in uptrend and supports the positive bias in the index in the coming weeks
(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