Market technical outlook: Nifty may hit 18100, Bank Nifty positive, may retest all-time high; watch volatility | The Financial Express

Market technical outlook: Nifty may hit 18100, Bank Nifty positive, may retest all-time high; watch volatility

Broader markets relatively underperformed the benchmark as Nifty midcap, small cap lost 0.5 per cent and 1.4 per cent, respectively. Sectorally, financials remained at forefront followed by energy and FMCG while metal took a breather.

Market technical outlook: Nifty may hit 18100, Bank Nifty positive, may retest all-time high; watch volatility
The Nifty settled the week at 17576, up 2.3 per cent. Image: Reuters

– By Dharmesh Shah

Nifty Outlook:

Market Outlook

Week that was…

Equity benchmarks resolved higher tracking firm global cues. The Nifty settled the week at 17576, up 2.3 per cent. Broader markets relatively underperformed the benchmark as Nifty midcap, small cap lost 0.5 per cent and 1.4 per cent, respectively. Sectorally, financials remained at forefront followed by energy and FMCG while metal took a breather.

Technical Outlook

  • The Nifty started the week on a positive note and endured its northbound journey as index witnessed positive close on all five sessions that helped index to resolve out of three weeks consolidation (17500-16700). The weekly price action formed a sizable bull candle carrying higher-high-low, indicating continuance of positive bias. 
  • We reiterate our positive stance and expect Nifty to gradually head towards 18100 in coming weeks amid progression of earnings season. However, in the upcoming truncated week stock specific action would prevail amid rise in volatility owing to monthly derivatives expiry week. Our positive stance on the market is based on following observations:

a) The breakout from three weeks consolidation (17500-16700) along with broader participation and relative outperformance against global peers augurs well for extension of ongoing up move

b) The BFSI space, which carries more than 36 per cent weightage in Nifty, is expected to outperform as rallies are quicker and stronger while corrections are shallow, underpinning inherent strength. Within the banking space, Nifty PSU bank index posted resolute breakout above CY21 highs and past five year down trend line indicating strong structural uptrend. While large caps have seen strong traction, we expect smaller PSU banks to catch-up and witness strong upward momentum in coming weeks. 

c) US Dollar/INR pair has approached key trend line resistance around 83.30 mark. Since 2015 on multiple occasions the pair has reversed lower from this trend line amid extreme overbought readings on weekly timeframe. We expect US dollar to soften from this key hurdle which will support bullish sentiment for domestic equities  

d) India VIX (which gauge the market volatility) continued to drift downward over fourth week in a row as it declined ~6 per cent to settle around 17 mark, indicating low risk perception among market participants

Also Read: Global markets: Asian stocks ease to 2-1/2-year lows, pound lifted by Rishi Sunak’s victory

  • Sectorally, BFSI, IT, Capital goods, PSU and Telecom are expected to lead the gains
  • Our preferred large caps are State bank of India, Axis bank, Reliance Industries, Bharti Airtel, Infosys, ITC, Titan, Ambuja Cement, Coal India, Dr Reddy while preferred midcaps are CUB, Bank of Baroda, Concor, Coforge, TTK Prestige, IRCTC, Bharat Dynamics, Jamna Auto, SCI, Trent
  • Structurally, over past three weeks on multiple occasions elevated buying demand emerged from 200 days EMA placed around 17000 mark, indicating inherent strength amid elevated global volatility. Thereby, we revise our support to 17300 as it is confluence of:

a) 50 per cent retracement of past two weeks rally 16950-17670

b) 50 days EMA is placed at 17290 

  • Broader market indices have bounced after forming a higher base above 100 days EMA. We expect the Nifty midcap and small cap indices to witness catch up activity against Nifty as they are poised to surpass their three week highs, amid advancement of earning season

Nifty Chart

Bank Nifty Outlook:

  • The Bank Nifty gained for the third consecutive week and closed sharply higher by 3.8% at 40784 levels. PSU banking stocks continue to outperform with the PSU bank index closed the week higher by more than 10 per cent. The weekly price action formed a strong bull candle with a higher high-low signaling continuation of the up move.
  • Going forward, we expect the index to maintain positive bias and retest the all-time high placed at 41840 levels in the coming weeks. Dips on account of global volatility should not be constructed as negative instead should be used as a buying opportunity
  • Nifty PSU banking stocks continue to outperform and the PSU bank index has posted a resolute breakout above CY21 highs and past five years down trend line indicating strong structural uptrend. While large caps have seen strong traction, we expect smaller PSU banks to catch-up and witness strong upward momentum
  • 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
  • Amongst momentum oscillators, weekly stochastics has generated a buy signal near the neutral reading of 50 thus supports the positive bias in the index   
  • The Bank Nifty has support at 39000 mark being the confluence of the (a) last week low (b) presence of 50 days EMA at 39250 levels and (c) the 50 per cent retracement of the last three weeks up move (37387-41032)

(Dharmesh Shah is the Head – Technical at ICICI Securities)

Disclaimer: 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 21/10/2022 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.

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First published on: 25-10-2022 at 10:46 IST