Nifty support at 15200, high volatility likely due to monthly F&O expiry; buy SBI, TCS, Titan stocks for gains

We expect NSE Nifty 50 to eventually resolve past falling channel (confining price action since early June) is placed at 15800 and gradually head towards 16200 levels in coming weeks as it is 61.8% retracement of June decline (16794-15183)

Nifty, Bank nifty
We expect Banking index to gradually resolve above past two week’s high of around 33700 levels and gradually head towards 34500 levels in coming weeks. Image: Reuters

By Dharmesh Shah

Equity benchmarks took a breather after two weeks of decline as inflation concerns were tamed down by decline in commodity prices and India VIX. The NSE Nifty 50 ended the week at 15699 up 2.7%. The Nifty Midcap, Smallcap relatively underperformed the benchmark by gaining 2% and 1.6%, respectively. Sectorally, auto, consumption, IT remained in limelight while metal extended correction

Nifty Technical Outlook

The index started the session on a positive note and gradually inched upward as the week progressed. In the process, index managed to hold last week’s low of 15183. The weekly price action formed a bull candle confined within last week’s sizable bear candle, highlighting abating downward momentum. 

Going ahead, we expect NSE Nifty 50 to eventually resolve past falling channel (confining price action since early June) is placed at 15800 and gradually head towards 16200 levels in coming weeks as it is 61.8% retracement of June decline (16794-15183) coincided with upper band of negative gap recorded on June 13 (16201-15878). On the downside, the past two weeks’ identical low of 15200 would act as immediate support for the Nifty. In the process, we expect volatility to remain high owing to monthly expiry week. Thus, any dip towards 15400 should be used as a buying opportunity. 

Our constructive bias is further corroborated by following evidences: 

a) the sentiment indicators are approaching their bearish extremes. Historically, reading of percentage of stock above 200 DMA below 15 signifies extreme pessimism in the markets that eventually leads to a technical pullback in subsequent weeks. Currently index recorded bearish extreme of 12 (which is lowest since March 2020) suggesting a strong possibility of a technical pullback in following weeks

b) Brent oil prices have breached the weekly rising trend line indicating loss of momentum and we expect upsides to be capped in the 125-130 zone. Further decline in crude oil will provide impetus for extended pullback

Amongst sector preferences, IT, BFSI are key sectors with favourable risk/reward, while Auto and Capital goods are expected to outperform.

We prefer State Bank of India (SBI), Housing Development Finance Corporation (HDFC), Kotak Mahindra Bank, Tata Consultancy Services (TCS) , Maruti Suzuki India, ITC, Titan Company in large caps while in midcaps we like KPIT Technologies, Federal Bank, AIA Engineering, NRB Bearings, Ashok Leyland, Automotive Axles, Bharat Electronics, Havells, Trent, Indian Hotel.

On the broader market front, in three instances over the past decade, intermediate corrections in the Nifty Midcap, Small cap indices have been to the tune of 28% and 40%, respectively. At present, both indices have corrected 25% and 34%, respectively. Therefore, any further correction is likely to be short lived amid oversold territory and would set the stage for a technical pullback in coming weeks

Nifty Chart

Bank Nifty Outlook

The Bank Nifty traded firm on Friday led by private banks and PSU banks alike as both gained nearly 2%. The pullback was broad based which led Banking index to settle the week at 33627, up 2.2% thereby snapping three week losing streak

The weekly price action formed a Bull candle with lower shadow as supportive efforts emerged near last week’s and March 2022 identical lows around 32300 levels

Going ahead, we expect Banking index to gradually resolve above past two week’s high of around 33700 levels and gradually head towards 34500 levels in coming weeks which is higher band of bearish gap area (34483) and 61.8% retracement of preceding three week decline (36083-32290)

In the coming expiry week, volatility is likely to remain elevated wherein buying demand is expected to emerge around 32500 levels. Hence any dips in coming week towards 32800-32500 may be used as buying opportunity

The index has key immediate support at past two week’s identical lows and March 2022 lows placed in the range of 32100-32300. 

Amongst momentum oscillators, weekly RSI has formed a positive divergence with last week reading of 38 against May 2022 reading of 37 while price made new low. Such divergence is indicating receding downward momentum and likely to trigger further technical pullback in coming weeks

(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 17/06/2022 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.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Most Read In Cafeinvest
Photos