By Dharmesh Shah
Equity benchmarks edged higher amid global tailwinds coupled with lower crude oil prices. The NSE Nifty concluded monthly expiry week at 18513, up 1.1%. The broader markets relatively outperformed the benchmark as the Nifty mid-cap, small-cap gained over 2%, each. Sectorally, IT, PSU, Auto outshone while Realty, Metal took a breather.
The Nifty started the week on a subdued note however buying demand from 20 days EMA helped index to resolve out of two weeks trading range 18400-18100. The weekly price action formed a bull candle carrying a higher high, indicating continuance of upward momentum.
We reiterate our positive stance and expect Nifty challenging all-time high and gradually head towards 18900 in coming month. In the process, we expect broader market to relatively outperform as it approaches maturity of price/time wise correction. Thus, temporary breather from here on should be capitalised on as incremental buying opportunity as we do not expect index to breach the key support of 18100. Our positive stance is anchored on following observations:
a) Nifty continues to make higher high-low after breaking out from one year trading range
b) Brent prices continue to trend lower in a well channelled fashion. Expect downtrend to further accelerate below 81 mark with strong resistance at 95
c) Dollar index continued lower high-low pattern after breakdown from multi month rising channel indicating reversal which is positive for equities
d) India VIX corrected another 10% in the week continuing its down trend highlighting low risk perception amongst market participants
Sectorally, BFSI, IT, Telecom, PSU and Infra are preferred sectors. Key point to highlight is that IT index managed to surpass its 200-day EMA for first time since its breach in April 2022 indicating improved price structure. We remain positive and expect index to rally further 10-15% in coming quarters.
Also read: Why Delaporte’s brave bets have failed to sustain Wipro’s growth?
On the stock front, preferred large caps are Reliance Industries, HDFC Bank, Axis Bank, HCL tech, L&T, Ultratech Cement, Tata Motors while CUB, Railtel, Coforge, Concor, Cummins India, JK Lakshmi Cement, Escorts, Finolex Industries, Supreme Industries, Tejas Networks are preferred in mid-cap.
Structurally, breakout from higher base formation above 20 days EMA signifies elevated buying demand that makes us confident to revise support base at 18100 as it is confluence of:
a) As per change of polarity concept earlier resistance of 18100 would now act as key support
b) 20 days EMA is placed at 18174
c) Lower band of recent consolidation is placed at 18133
Midcap and small cap indices have approached maturity of price/time maturity of correction after 12-week consolidation wherein it merely retraced 38%. Shallow retracement indicates inherent strength that augurs well for next leg of up move.
Bank Nifty Outlook
The Bank Nifty endured its northbound journey over eight consecutive week tracking buoyant global cues as it scaled a fresh all all-time high (43339) during last week. The index closed the week at 42984 levels up by 1.3%. The Nifty PSU banking stocks continue to outperform as the PSU bank index closed the week higher by 5%. The weekly price action formed a bull candle which maintained higher high-low signalling continuation of the up move. We reiterate our positive stance and expect the index to head towards 44600 levels in the coming month being the 161.8% external retracement of the September 2022 breather (41840-37387).
Index after a sharp up move of more than 14% in the last eight weeks have approached overbought territory with weekly stochastic reading of 93. Hence, a temporary breather cannot be ruled out which will be confirmed only on formation of a lower high-low in the weekly chart. The overall price structure remains firmly positive hence, we believe breather towards the breakout area of 41800 should be used as a buying opportunity for next leg of up move.
Bank Nifty/Nifty ratio line is in steady up trend and has recently rebounded after testing its 15 months range breakout area, indicating strength and continuation of the relative outperformance by the Bank Nifty. Structurally, in the Bank Nifty rallies are getting faster and stronger while corrections are shallow, underpinning inherent strength highlighting robust price structure.
The Bank Nifty has support at 41800 mark being the confluence of:
a) 23.6% retracement of the last seven weeks up move (37387-42860) placed at 41780
b) the 10 weeks EMA currently placed at 41230 levels
c) the upper band of the recent eight weeks range breakout area placed around 41800 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 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.