Nifty to hit 15,700 in June; charts signal up move in Bank Nifty; IT, consumption sectors to lead the rally

May 31, 2021 9:26 AM

After a nearly 900 points rally in the Nifty 50 index over the past 10 sessions, a temporary breather from higher levels cannot be ruled out

Bank Nifty, Nifty, stock marketsGoing forward, we reiterate our positive stance on Bank Nifty with target of 36200 in coming month as it is the confluence of the 80% retracement of the entire last three months corrective decline

By Dharmesh Shah

In the week gone by equity benchmarks extended gains over second consecutive week as index scaled to fresh lifetime high of 15455 amid buoyant global cues. Nifty settled the week at 15436, up 1.7%. Broader market performed in tandem with benchmark the benchmark as Nifty Mid cap and small cap rose 1.2% and 2%, respectively. Sectorally, financials, IT and auto outshone while pharma and metal took a breather

Nifty technical outlook

– In line with our view (‘Monthly Technical Strategy’- May), Nifty resolved higher and surpassed the lifetime high of 15400. The weekly price action formed a significant bull candle carrying higher high-low, indicating acceleration of upward momentum.
– We expect, Nifty to resolve higher and head towards our revised target of 15700 in June, as it is 123.6% external retracement of February-April correction (15432-14151). Our constructive stance on the market is based on following observations:
a) Key point to highlight is that, index has entirely retraced past 10 weeks corrective move (15432-14151) in just five weeks. Faster pace of retracement signifies structural improvement that augurs well for next leg of up move
b) The current up move (1050 points) off May low of 14416 is larger in magnitude compared to last two up moves of ~900 points in last three months. The elongated up moves followed by shallow retracement supported by improving market breadth signifies robust price structure

We expect, Nifty to resolve higher and head towards our revised target of 15700 in June, as it is 123.6% external retracement of February-April correction

– After ~900 points rally over past 10 sessions, temporary breather from higher levels cannot be ruled out. However, such breather should be capitalised to accumulate quality stocks to ride next leg of up move. Meanwhile, Nifty small cap index is expected to challenge life highs
– Sectorally, BFSI, IT, Infra and Consumption are expected to lead the rally. Auto and Metals provide favourable risk-reward
– We prefer Infosys, Kotak Bank, Reliance Industries, Dmart, M&M, Titan in large caps while, Mindtree, Grindwell Norton, EIH, Endurance, Bata India, Thermax, are preferred in Midcap category
– Nifty midcap and small cap indices endured their winning spree and clocked fresh 52 weeks high. The outperformance in the broader market indices has been backed by improving market breadth as currently ~85% of index components are trading above their 50 days EMA compared to April reading of ~60%. We expect broader market to outperform and small cap index to challenge the all-time high which is just 3% away
– Structurally, the formation of higher high-low signifies elevated buying demand that makes us confident to revise support base at 14900 as it is confluence of:
a) 80% retracement of past 2 weeks rally (1472-15470), at 14875
b) 50 days EMA is placed at 14825

Bank Nifty outlook

– The index gained for the second consecutive week and closed firmly above psychological 35000 levels. The weekly price action formed a bull candle with a lower shadow, indicating continuation of the up move and a buying demand at lower levels near the recent breakout area and the April high (34287)
– Going forward, we reiterate our positive stance with target of 36200 in coming month as it is the confluence of the 80% retracement of the entire last three months corrective decline (37708-30405) and the price parity with previous up move (30405-34287) as projected from the recent trough of 32115 signalling upside towards 36200 levels

The index gained for the second consecutive week and closed firmly above psychological 35000 levels.

– Key observation is that the index since April has maintained the rhythm of not correcting for more than two to three sessions. During previous week, also the index rebounded after two sessions of breather. Extended rally and shallow correction highlights positive price structure.
– As mentioned in earlier edition the index has recently registered a breakout above the falling supply line joining major highs of the last three months as can be seen in the adjacent chart highlighting resumption of the primary up trend
– The formation of higher high-low on the weekly chart signifies elevated buying demand that makes us confident to revise the support base higher towards 34000 levels as it is confluence of:
a. The 38.2% retracement of the current up move (32115-35463)
b. The recent breakout area and the April high (34287).
– Among the oscillators, the weekly stochastic remain in uptrend and is currently placed at a reading of 76 thus supports the continuation of the positive bias in the index in the 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 22/04/2021 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

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