By Dharmesh Shah
The equity benchmarks concluded truncated week on a positive note in catchup with global peers, as risk-on sentiment was further boosted amid RBI pausing rate hikes and global expectations of further rate hikes tapered. Nifty closed the week at 17599 levels up 1.4%. The broader market performed in tandem with the benchmark as Nifty Midcap and Small cap indices gained 1.1% and 2.3%, respectively. Sectorally, all major indices ended in green led by financials, pharma, auto, and realty outshone
Technical Outlook
- In line with our view, the index resolved higher and surpassed 200 days EMA. As a result, the index approached the upper band of the past four months’ downward slanting channel placed at 17600. The weekly price action formed a strong bull candle carrying a higher high-low, indicating the continuance of positive bias
- The formation of a higher high-low backed by improving market breadth makes us confident that the index will resolve higher and gradually head towards 18100 in April 2023. In the process, bouts of volatility owing to global development can not be ruled out. However, any dips from here on should be capitalised to accumulate quality stocks in a staggered manner. Our positive view on the market is further validated by following observations:
- The current pullback of 810 points is strongest in magnitude since life highs recorded in December 2022, indicating structural improvement
- On the momentum indicator front, Rate of Change indicator is at 5 month high (on multiple parameters), indicating revival in upward momentum
- On larger time frame, monthly stochastic around 25 in March was at its bearish extremes making a strong case for meaningful gains over next three months
- Current up move was backed by robust market breadth as 80% components of Nifty 500 universe have given positive returns during this period, while percentage of stocks above 200dma has improved from a low of 32 in March to current reading of 43 marking stark improvement
- VIX and trajectory of yields, domestically and globally, pointing towards favourable environment for risk assets especially equities
- US dollar index trending down with lower high low on monthly charts, a positive for EM equities. A further breakdown below 100 would lead to an acceleration of inflows
- Sectorally, BFSI, Auto, IT, Capital goods and Infra, PSU to lead the rally
- On the stock front, in large-cap HDFC Bank, Bajaj Finance, SBI, L&T, ITC, Infosys, Maruti, DLF, BEL are in focus while in midcap AB Capital, Sundaram Finance, MGL, HG Infra, Lemontree, ABFRL, RK Forge, Timken remain in focus
- We expect broader markets to witness catch up activity as Nifty midcap and small-cap indices have surpassed above their past two weeks high, indicating a pause in downward momentum and augurs well for the acceleration of upward momentum in coming weeks
- Structurally, the formation of higher high-low on the weekly chart makes us confident to revise support base at 17100 as it is 61.8% retracement of recent pullback (16828-17638) coincided with the positive gap area of 17126-17204 recorded on 31st March 2023
Bank Nifty Outlook:
- The Bank Nifty gained for the second consecutive week and closed at 41041 levels higher by 1.1%. amid firm global cues. Sentiment further boosted amid RBI pausing rate hikes. The weekly price action formed a bull candle with a higher high-low signalling continuation of the up move.
- The index on expected lines approached a higher band of the falling channel that encompasses the past four-month corrective phase at 41200. Going ahead, we expect the index to break past this short-term hurdle over the next few sessions, leading to further acceleration towards 42000 levels in April 2023 being the confluence of the high of February 2023 and 61.8% retracement of the entire corrective decline (44151-38613). Use dips as a buying opportunity with elevated support at 40000 levels
- Bank Nifty/Nifty ratio line continues to trend higher and sustain the above major breakout area signalling continuation of the outperformance
- The index has support at 40000 levels being the confluence of the bullish gap up area of 29th March 2023 and the 50 % retracement of the last three weeks pullback (38613 -41274)
- The weekly stochastic has generated a buy signal moving above its three periods average thus supports the continuation of the current pullback in the coming weeks
(Dharmesh Shah is Head Technical at ICICI Securities Ltd. Views expressed are author’s own.)
