By Dharmesh Shah
Equity benchmarks snapped a three weeks losing streak underpinned by global recovery last week. The Nifty concluded a truncated week with a gain of 1.3% at 17315. Broader markets relatively outshone the benchmark as Nifty midcap, small cap risen ~2.5%, each. Sectorally, IT, metal, PSU, realty outshone while FMCG took a breather
The Nifty started the truncated week on a negative note. However, supportive efforts from 200 days EMA helped index to recoup intra-week losses entirely and settle the week above 17300 mark. The weekly price action formed a bull candle carrying higher high-low, indicating follow through strength to last week’s bullish hammer candle. In the process, Nifty filled the 26th September negative gap 17327-17156, signifying pause in downward momentum.
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Going ahead, we expect the index to consolidate in the broader range of 17500-16700 amid stock specific action. The Nifty has rallied 680 points over past five sessions that hauled short term oscillators in overbought territory, indicating a couple of days breather ahead of US inflation data cannot be ruled out. However, such a breather should not be construed as negative instead any dip from hereon should be used as buying opportunity amid onset of earning season, to ride the next leg of up move towards 17500. Sustainability above 17500 would lead to further acceleration of upward momentum. Our positive view is anchored on following observations:
A) Historically, September has been a volatile month. However, over the past two decades, Q4 returns for Nifty have been positive (average 11% and minimum 5%) on 70% of the times. The history favours buying dips from hereon
B) Indian equities continued to relatively outperform global peers while pricing in many negatives in the process. We expect outperformance to continue
Sectorally, BFSI, Consumption, Pharma and PSU expected to outperform
Also read: Nifty must hold above 17300 for an upmove towards 17500; buy these two stocks to pocket gains
Our preferred large caps are TCS, IndusInd Bank, Bank of Baroda, Reliance Industries, Sun Pharma, Titan, Tata Motors, Coal India while preferred midcaps are Havells, Bajaj Electricals, TCI Express, Tata communications, Tata Chemicals, Bharat Forge, Midhani, Cyient, Kewal Kiran Clothing.
Structurally, index has undergone a slower pace of retracement as over the past seven weeks’ it retraced less than 50% of earlier nine week’s rally (15185-18000) while absorbing global volatility, signifying healthy retracement amid relative outperformance against global peers. In the coming week, we expect index to hold the key support of 16700 in the near term as it is confluence of:
A) 52 weeks EMA is placed at 16784
B) 50% retracement of June-August rally (15185-18000), at 16640
C) September 2022 low is placed at of 16748
Broader markets indices have shown follow through to last weeks bullish hammer like pattern and relatively outperformed the benchmark. We expect, Nifty midcap and small cap indices to hold their September lows respectively and stage a pullback in coming weeks on the beginning of earning season
Bank Nifty
The Bank Nifty index gained during the volatile week amid elevated buying demand. Nifty Private Banking index (+2%) outperformed its PSU peer (+0.8%) during last week. The Bank Nifty closed the session at 39178, up 1.4% or 576 points for the week.
The index started the week with a gap down action, only to recover the entire losses towards the end and settled above the 39000 mark. In the process, price action formed a Bull candle with its body engulfing last week’s Bullish Hammers small real body with higher high-low signifying follow through strength and presence of elevated buying demand.
Going forward, we maintain our positive stance on Bank Nifty and expect it to head towards 40100 mark in coming weeks which is 61.8% retracement of the most recent decline (41840-37386). However, such an up move would be gradual and nonlinear amid global volatility. We therefore recommend buying dips as we expect index to hold 38000 levels in the process.
Structurally, the index has already posted faster retracement on higher degree as eight month’s decline (41829-32990) was completely retraced in just two and half months highlighting end of major corrective phase and structural improvement. Hence ongoing retracement of June-September rally should not be construed negative rather would make overall trend healthier.
The Bank Nifty has key immediate support at 38000 mark being the last week’s low that also coincides with rising 100 day EMA.
Amongst momentum oscillators, weekly stochastics has eased from overbought readings to current reading of 45 making risk-reward favourable.
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 21/01/2022 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.