Nifty likely to head towards 18300 in October, Bank Nifty looks to hit 41800; buy SBI, Bharti Airtel for gains | The Financial Express

Nifty likely to head towards 18300 in October, Bank Nifty looks to hit 41800; buy SBI, Bharti Airtel for gains

Nifty is likely to maintain positive bias and head towards 41800 levels.

Nifty likely to head towards 18300 in October, Bank Nifty looks to hit 41800; buy SBI, Bharti Airtel for gains
Nifty index is undergoing healthy consolidation which will help to cool off the overbought conditions. Image: Reuters

By Dharmesh Shah 

The Nifty started the previous week on a buoyant note and surpassed the psychological mark of 18000. However, profit booking in the second half of the week amid overbought conditions dragged the index below 17600 mark. Consequently, weekly price action formed a bear candle with a shadow on the upper side, indicating profit booking at the higher end. Going ahead, we reiterate our structural positive stance and expect the Nifty to gradually head towards the January 2022 high of 18300 by October while strong support of 17300 is expected to be held. The index is undergoing healthy consolidation which will help to cool off the overbought conditions (daily and weekly stochastic oscillators cooled off to 36 and 56, respectively) ahead of U.S. Fed event this week. 

Also read: Nifty to see profit booking, use Long Strangle for 22 Sep F&O expiry; Bank Nifty looks mixed this week

Empirically, secondary correction is an integral part of the bull market that paves the way for the next leg of up move. Thus, ongoing breather should not be construed as negative, instead dips should be capitalized to accumulate quality stocks. Our positive stance on index is based on following observation:

a) Over past four weeks’ index has undergone slower pace of retracement by retracing merely 38.2% of mid July-August rally (15850-18000), thereby making market healthier

b) Brent crude prices continue to trend downward after breaking their two-year support trend line. This week decisive break below 86 would lead further declines

c) Indian equities continue to relatively outperform in the face of global volatility. Nifty500 ratio against S&P500 has given a breakout from decade long consolidation underscoring relative outperformance ahead.

Sectorally, BFSI, Auto, PSU, Consumption, to relatively outperform. In large cap space, we like, SBI, NTPC, Titan, Asian Paints, Maruti Suzuki, Bharti Airtel, United Spirits while our preferred midcaps are TCI, Cochin Shipyard, Kajaria Ceramics, Relaxo Footwear, SJVN, PCBL, Thermax, TCNS Clothing, VIP Industries, Oriental Hotel, Mazagon Dock. Structurally, we expect extended breather from hereon would get anchored around 17300 mark as it is 80% retracement of recent 11 sessions rally (17166-18096) coincided with 50 days EMA placed at 17300

Bank Nifty Outlook

The Bank Nifty gained for the third consecutive week and on expected lines tested its all-time high (41829) on Thursday’s session. Profit booking in the last two sessions saw the index gave up some of its gains and closed at 40776 levels up by 0.9%. The weekly price action formed a small bull candle with a long upper shadow signaling profit booking around the previous highs after the recent strong rally

Also read: Nifty may fall below 17500 if weakness persists, US Fed may hike rate by 100 bps; watch out for these levels

Going ahead we expect the index to maintain positive bias and head towards 41800 levels. Dips on account of global volatility ahead of Fed event should not be construed as negative rather be used as buying opportunity. Index has strong support around 39800 levels   

Structurally, the index has witnessed a faster retracement as eight month’s decline (41829-32990) was completely retraced in just two and half months highlighting overall positive bias. 

In the weekly time frame after a strong rally of 29% in just 13 weeks, index has approached overbought territory with a weekly stochastic reading of 83. Hence, temporary breather cannot be ruled out after the recent strong outperformance which will make the overall trend healthier. 

Bank Nifty continues to relatively outperformed the benchmark index in the last few quarters as can be seen in the Bank Nifty/Nifty ratio chart. It has recently generated a breakout above the last 15 month’s range. Within the banking stocks PSU banking stocks has been resilient and showing relative strength. We expect the current outperformance to continue going forward

The index has strong support around 39800 levels as it is the confluence of the 20 days EMA (currently placed at 39860) which has acted as strong support in the entire up move of the last two months and the 50% retracement of the last three weeks up move (37944-41840)

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.

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