By Dharmesh Shah
Equity benchmarks clocked a fresh all time high and settled the week on a buoyant note tracking firm global cues after US Fed signalled smaller rate hikes ahead and china covid related worries ebbed. The Nifty settled the week at 18696, up 1%. The broader markets relatively outperformed the benchmark as the Nifty midcap, small cap gained over 3% and 2%, respectively. Sectorally, all major indices ended in green led by Metal, FMCG, realty
The Nifty started the week on a subdued note however elevated buying demand helped index to resolve higher and record fresh all-time high. As a result, index approached our target of 18900. The weekly price action formed a bull candle carrying a higher high-low, indicating continuance of upward momentum.
The breakout from 13 months’ range supported by across sector participation signifies resumption of structural up trend that makes us reiterate our constructive stance and expect Nifty to gradually head towards 19400 in coming weeks. However, the move towards 19400 would be in a non linear manner as bouts of volatility amid global development can not be ruled out wherein we expect broader market to relatively outperform as it is resolving out of three months’ higher base formation. Thus, dips should be capitalised on as incremental buying opportunity as we expect any temporary breather to get anchored around key support of 18300. The aforementioned positive stance is further validated by following observations:
- Market breadth measured in terms of percentage of stocks above 200dma surpassed 65% for first time in 11 months indicating broader participation.
- Dow Jones Industrial retraced last falling segments high in faster time as 9-week decline was retraced in 6 weeks, first time since January 2022 highs.
- Dollar Index and US 10Y yields continue to form lower high-lows after breaking from rising channels indicating further downsides. Both have inverse correlation with equities.
- India VIX made lowest monthly close since August 2021 with lower high-low indicating lower risk perception by market participant.
- Sectorally, IT, Telecom, Infra, Metal and Consumption are preferred sectors. Key point to highlight is that relative ratio of Nifty IT against Banknifty has resolved at 3 months high, first time since May 2022 indicating that IT may relatively perform better than banking in the short term.
- On the stock front, preferred large caps are Reliance Industries, TCS, SBI, Ambuja Cement, Adani Ports, Tata Steel, Tata Motors, DLF while CUB, Coforge, Sonata Software, Concor, Polycab, Cummins India, JK Cement, Bhel, Supreme Industries, Tejas Networks, Brigade Enterprises, Timken, KNR Construction are preferred in Midcap.
- Structurally, elongation of rallies along with shallow retracement indicates inherent strength that makes us confident to revise support base upward at 18300 as it is confluence of:
- as per change of polarity concept January high of 18350 would now act as key support
- 20 days EMA is placed at 18382
- last week’s low is placed at 18365
Bank Nifty Outlook
The Bank Nifty traded in a range with positive bias to gain for the ninth consecutive week amid strong global cues as it scaled a fresh all all-time high (43515) during last week. The mid and small cap banking stocks outperformed while the large cap consolidated with positive bias. The index closed the week at 43103 levels up by 0.3%. The weekly price action formed a small bull candle with an upper shadow signaling profit booking at higher levels after sharp up move measuring 15% in past nine weeks.
We expect the index to maintain positive bias and head gradually towards 44600 levels in the coming weeks being the 161.8% external retracement of the September 2022 breather (41840-37387). Dips should be used as a buying opportunity index has strong support placed around 41800 levels.
Going forward, a temporary breather cannot be ruled out as the weekly stochastic after the recent sharp rally is placed at an overbought territory with a reading of 91. However, it will be confirmed only on formation of a lower high-low sequence. We believe corrective decline should not be seen as negative instead breather towards the breakout area of 41800 levels should be used as a buying opportunity for next leg of up move.
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 the
(a) 23.6% retracement of the last nine weeks up move (37387-43515) placed at 41970
(b) the 10 weeks EMA currently placed at 41470 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.