By Dharmesh Shah
NSE Nifty 50 witnessed a roller coaster ride as it oscillated by 1200 points over the last week. Consequently, weekly price action formed a bear candle with a shadow on upper side, indicating profit booking at higher levels. On the structural front, our positive stance remains intact with a target of 18300 in October 2022 while 17100, which is August low, is expected to act as key support. During this monthly expiry week, possibility of extended consolidation in the 17800-17100 range with a stock specific action cannot be ruled out ahead of RBI policy. Thus, dips should be utilized to accumulate quality stocks.
Our positive stance is further validated by observation a) key point to highlight is that, over the past five weeks index has retraced merely 38.2% of preceding five weeks rally (15850-18100) while absorbing global volatility, signifying inherent strength and relative outperformance against global peers. We believe, the shallow retracement has helped index to cool off the overbought conditions and ongoing higher base formation would pave way for next up move, b) brent crude prices continue to form lower high-low and technical pull backs are expected to be short lived, c) despite rising global volatility India vix continues to trade below 21 mark signalling that market participants are not expecting major risk in the near term
Rupee movement will also be key monitorable, which could lead to sectoral churn as defensives are attractively priced while rate sensitives may be vulnerable to temporary profit booking after sharp rally recently. Sectorally, Consumption, Auto, BFSI remain in structural uptrend while Pharma provide favourable risk reward proposition
Our preferred large caps are: Bajaj Finance, SBI, Asian Paints, Titan Company, Hindustan Unilever, Maruti Suzuki, Cipla, TCS while preferred midcaps are Bharat Dynamics, Concor, Laurus Labs, KEC, Supreme Industries, Tata Chemicals, Zee Entertainment Enterprises.
Structurally, we expect extended breather from hereon would get anchored around 17100 mark as it is confluence of 38.2% retracement of recent July-September rally (15858-18096) and 100 days EMA placed at 17100 coincided with August low of 17155
Bank Nifty Outlook
The Bank Nifty snapped a three weeks up move and closed lower by 3% amid weak global cues and rupee making new lows. The US FED’s aggressive stance also weighed on sentiments. The index closed at 39546 down by 3%. The weekly price action formed a bear candle with a lower high-low signaling profit booking after a sharp up move of 3800 points up move in the preceding three weeks.
Going ahead, we expect consolidation amid positive bias in a broader range of 38500-40500 levels ahead of the RBI policy and monthly expiry. Rupee movement will also be key monitorable this week. We believe the current breather on account of global volatility should not be construed as negative rather should be used as a buying opportunity for gradual up move towards 41800 levels in October.
Structurally, in the longer time frame 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.
The last two week’s breather has helped the index to cool off the overbought condition in the weekly stochastic from the reading of 95 to 67. We believe temporary breather after the recent strong outperformance will make the overall trend healthier. The index has support around 38500 levels as it is the confluence of the 50 days EMA (currently placed at 38790) and the 80% 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.