Nifty may head to 16,100 in coming weeks, Bank Nifty positive; Infosys, Axis Bank stocks top bets

July 05, 2021 8:59 AM

Nifty 50 index may gradually resolve above the upper band of consolidation and eventually head towards 16100 in the coming weeks as we approach Q1FY22 earnings season.

Sensex, Nifty, stock markets, Infosys, ICICI BankIn the past three weeks, healthy consolidation (15900-15500) helped Nifty index to form a higher base in the range of 15600-15500.

By Dharmesh Shah

In the week gone by equity benchmarks concluded on a subdued note. The Nifty dropped 0.9% to settle the week at 15722. Broader markets relatively outperformed as Nifty midcap and small cap gained 0.5% and 2%, respectively. Sectorally, Pharma, FMCG, PSU Bank outshone while Financials and metal took a breather

Nifty Technical Outlook

– The equity benchmark opened the week at the all-time high of 15915, however failed to sustain at the upper band of consolidation (15900) and consequently underwent profit booking. As a result, weekly price action formed a bear candle carrying higher high-low, indicating extended breather amid stock specific action. In the process, Nifty small cap index scaled to a fresh all-time high, highlighting resilience
– We believe, in the past three weeks, healthy consolidation (15900-15500) helped index to form a higher base in the range of 15600-15500. We expect the index to gradually resolve above the upper band of consolidation and eventually head towards 16100 in coming weeks as we approach Q1FY22 earnings season. Thereby dips should be capitalised as incremental buying opportunity. Our constructive bias on the benchmark is based on following thesis:
a) The index has witnessed a shallow retracement as over past three weeks it retraced merely 38.2% of preceding four weeks rally (15900-15600), indicating healthy consolidation
b) Past three weeks price action has seen contraction in price range (which is usually followed by a range breakout) as over subsequent weeks index formed a higher lows, highlighting elevated buying demand
c) The past four session’s corrective move helped the index to cool off the overbought condition that consequently hauled the Nifty towards lower band of rising channel placed around 15600
– On the sectoral front, IT, BFSI, Auto and Pharma are sectors in focus and expected to lead the rally
– Our preferred large caps are Infosys, Axis Bank, Tata Motors, Divis Laboratories and Titan Company while, in midcaps we like Mindtree, Trent, Deepak Nitrite, Philips Carbon, Caplin Point, CCL Products, KSB, Dhampur Sugar, Bluedart, Pricol, Supreme Industries
– The small cap index continued to outperform the benchmark as it scaled to fresh all-time high after a couple of weeks consolidation at multi year breakout area. Meanwhile, Midcap index extended healthy consolidation which would help index to form a higher base and ultimately make larger uptrend robust
– Structurally, we do not expect index to breach the key support threshold of 15600-15500 thereby extended breather should be capitalized to build a quality portfolio as key support of 15500 is confluence of:
a) 61.8% retracement of past four week’s rally (15145-15916), at 15440
b) Lower band of past two months rising channel is placed around 15600
c) past three week’s low is placed at 15450

The small cap index continued to outperform the benchmark as it scaled to fresh all-time high after a couple of weeks consolidation

Bank Nifty Outlook

– The Index settled 1.5% lower for the week after a choppy and stock specific play. The weekly price action resulted in a bear candle indicating extended consolidation post early June swing high (35810) while forming higher lows amid elevated buying demand
– Going ahead, we expect the index to trade with positive bias and head towards 36200 levels in the coming weeks as it is the confluence of the 80% retracement of the February – April 2021 decline (37708-30405) that coincide with price parity of late April swing (30405-34287) as projected from the recent trough of 32115
– On a smaller time frame the index has witnessed a shallow retracement as it has retraced just 50% of its May rally (32115-35810) over past four weeks.

On a smaller time frame the index has witnessed a shallow retracement as it has retraced just 50% of its May rally (32115-35810) over past four weeks.

– Key observation is price action has been contracting over past few sessions suggesting that breakout from this consolidation is approaching. We expect index to breakout on the higher side given shallow retracement and robust price structure
– The formation of higher high-low in the weekly time frame gives us confident to revise the support base higher towards 34200 being the confluence of the following technical observations:
a. The 80% retracement of the last five sessions up move (33908-35576) placed at 34265 levels
b. The value of the rising demand line joining lows of April 2021 and May 2021 is placed around 34450
c. The rising 50 days EMA is also placed at 34300 levels

(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 22/04/2021 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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