By Dharmesh Shah
Equity benchmarks endured its northbound journey over the fourth consecutive week tracking buoyant global cues underpinned by lower than expected US CPI number. On Friday, NSE Nifty 50 settled the eventful week on a positive note at 18350, up 1.3%. However, the broader market relatively underperformed as Nifty midcap, small cap lost 1% and 0.5%, respectively. Sectorally, financials, IT, metal remained at forefront while pharma, auto took a breather
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We expect, Nifty to challenge its all time high of 18600 this week and gradually head towards 18900 by December 2022. The formation of higher peak and trough on the larger degree chart supported by multi sector participation makes us reiterate our constructive stance. Thus, temporary breathers from here on should be capitalized as an incremental buying opportunity as we do not expect the index to breach the key support of 17800. Our positive stance on the market is based on following observations:
A) Nifty has given a resolute breakout from 13-month consolidation phase (18350-15183) indicating end of corrective phase and beginning of structural uptrend
B) The USD/INR pair has reversed from its key resistance around 83 mark on expected lines, supported by similar sharp reversal in US dollar index from multi year trend line resistance. Sequential lower high-low formation in USD/INR pair to favour inflows in Indian equities
C) India VIX has breached six-month low below reading of 15 indicating low risk perception from market participants
D) Global equity indices made sharp bullish reversal this week post favourable US CPI numbers. Dow Jones industrial average has given a breakout from 11-month long declining channel indicating end of corrective phase and expected to pose a technical pull back thereby supporting overall bullish sentiment
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On the sectoral front, we expect BFSI, IT, consumption and infra to drive the market higher. Key point to highlight is that, Nifty IT index has concluded a breakout from 11 month declining channel signalling end of corrective phase both price/time wise. Expect resumption of uptrend that is well supported by bullish reversal in US NASDAQ index from bearish extremes
On the stock front, in large caps we prefer Reliance Industries Ltd (RIL), SBI, Bajaj Finserv, TCS, L&T, Tata Steel, DLF, Maruti Suzuki while in midcap space we like Coforge, Jindal Steel and Power, Heidelberg Cement, Asahi India, Brigade enterprises, RVNL, Redington, Action Construction, Cochin shipyard.
Structurally, the formation of higher high and low signifies elevated buying demand that makes us confident to revise support base upward at 17800 as it is 38.2% retracement of past four week’s rally 16950-18357
The broader market indices are forming a higher base above 52 weeks EMA. We expect, Nifty midcap, small cap indices to accelerate upward momentum and witness catch up activity against the Nifty
Nifty Chart
Bank Nifty Outlook
The Bank Nifty continued with its positive momentum to gain for the sixth consecutive week. The index on expected lines surpassed its previous all-time high and closed the week at 42137 levels higher by 2.1%. PSU banking stocks continue to outperform with the PSU bank index closed the week higher by 6%. The weekly price action formed a bull candle with a higher high-low signaling continuation of the of the positive momentum
The index during last week has generated a breakout above the last eight weeks range (41840-37387) signaling extension of the up move. Going forward, we expect the index to gradually head towards 43500 levels in the coming weeks being the 138.2% external retracement of the recent breather (41840-37386). Hence, any dips should be used as an incremental buying opportunity in quality banking stocks
Structurally, in the Bank Nifty rallies are getting faster and stronger while corrections are shallow, underpinning inherent strength. It has recently generated a faster retracement on higher degree as eight month’s decline (41829-32990) was completely retraced in just two and half months highlighting robust price structure
The Bank Nifty has support at 40500 mark being the confluence of the (a) 38.2% retracement of the last six weeks up move (37387-42345) placed at 42500 (b) the 10 weeks EMA currently placed at 42400 levels
Among the oscillators the weekly MACD remain in strong up trend and is seen sustaining 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 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.