By Dharmesh Shah
The equity benchmarks BSE Sensex and NSE Nifty 50 extended gains over the third consecutive week tracking global recovery. The Nifty 50 ended the volatile week at 16,584 up 1.4%. The Small cap index relatively outperformed the benchmark by gaining 4.4% during the week. Sectorally, IT, realty, PSU Banks staged a bounce from oversold territory while pharma, financials relatively underperformed
Nifty 50 Technical Outlook
– The index witnessed a gap up opening (16352-16528) and traded with a positive bias throughout the week that helped the Nifty to approached near our target of 16800, on expected lines. The weekly price action formed a bull candle carrying higher high-low, indicating extended pullback. In the process, India VIX plunged 10% to settle below 20 levels for the week and formed a lower high-low after five weeks, highlighting improvement in sentiment
– Going ahead, Nifty holding 16400 post RBI policy outcome, would challenge 16800 and gradually head towards 17200 in the month of June. Key point to highlight during last week is that, throughout the week index managed to sustain above the earlier range breakout zone of 16400 coincided with positive gap area, highlighting elevated buying demand emerging from immediate support of 16400 as per change of polarity concept. Thus, we believe, after past six sessions rally of 1000 points, a healthy retracement towards 16500-16400 should be used as an incremental buying opportunity with focus on BFSI, IT, Auto and Capital goods
– In large caps, we prefer SBI, HDFC, Coal India, TCS, Tata Motors, ITC, L&T and Titan while in midcaps we prefer Bank of Baroda, Ashok Leyland, Automotive Axles, KPIT Technologies, Concor, Trent, BEL, Elgi Equipments, Zee Entertainment, SRF
– Structurally, the index has formed a higher high-low on the weekly chart after a seven weeks corrective phase, indicating a pause in downward momentum. The current up move is backed by improving market breadth that bodes well for extension of ongoing up move. The rejuvenating market sentiment makes us confident to retain support base at 16100 as it is 61.8% retracement of current up move (15735-16793)
– Broader market indices extended their pullback and approached the upper band of the past three weeks range. Going ahead, a decisive close above last week’s high would confirm a range breakout that would open the door for extension of pullback in Nifty midcap and small cap indices. Failure to do so would lead to prolongation of range bound activity wherein broader market would undergo a base formation
Bank Nifty Outlook
– The Bank Nifty traded in a range and closed lower by 1% during the previous week after a strong up move of more than 3000 points in the last two weeks. PSU banking stocks relatively outperformed during last week. The weekly price action formed a small bear candle as it opened higher, however profit booking at higher levels saw the index gave up its gains and closed marginally lower signaling breather after last two weeks strong up move
– Going ahead, we expect the index to hold above the support area of 34000, hence the current breather should not be seen as negative instead dips towards 34000-34500 should be used as a buying opportunity for gradual up move towards 36500 levels being the 61.8% retracement of the April-May decline (38765-33002).
– Key observation in the recent market correction is that Bank Nifty is relatively outperforming the Nifty and the Bank Nifty/Nifty ratio chart has registered a breakout above its last 15 months falling channel highlighting strength and continuation of the current outperformance
– The index has formed a higher high-low on the weekly time frame which make us confident to revise the key support base higher towards 34000 levels as it is the 61.8% retracement of the previous up move (33002-36083) placed at 34100 levels
– Among the oscillators the weekly stochastic remain in uptrend thus supports the overall 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 03/06/2022 (preceding date) 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.