By Dharmesh Shah
The equity benchmarks snapped three weeks winning streak and settled the previous week on a negative note tracking weak global cues as sentiments dented by rise in U.S. inflation at 40 years high. The NSE Nifty 50 ended the eventful week at 16050, down 1%. Broader markets relatively outperformed the benchmark as Nifty midcap gained 1.3% while small cap remained unchanged. Sectorally, pharma, oil & gas, auto remained in limelight whereas IT continued to underperform.
The index started the previous week on a subdued note and subsequently inched downward after three weeks’ swift up move. As a result, weekly price action formed a bear candle confined within last week’s bull candle, indicating breather amid stock specific action as we enter the Q1FY23 earning season. Further, weakening structure of crude oil and fall in industrial commodities boosted market sentiment that helped index to recoup intra-week losses
The index has undergone healthy retracement as it retraced 38.2% of >1000 points rally seen during past 3 weeks (15183-15661) that helped index to cool off the daily stochastic oscillator cooled off to 20 levels. In the process, the index managed to hold the breakout area of the two month downtrend line. Going ahead, we reiterate our positive stance on markets and expect the Nifty to gradually head towards 16600 in coming weeks. Meanwhile, bouts of volatility owing to volatile global cues cannot be ruled out. However, dips from here on should be capitalised on as a buying opportunity as we believe strong support is placed at 15500.
Our target 16600 is based on following observations:
A) 50% retracement of CY22 decline (18350-15183)
B) 200 days EMA is placed at 16550
Sectorally Auto and Capital goods are expected to lead amid structural uptrend, backed by sharp correction in crude oil prices and industrial commodities. BFSI, Consumption and Pharma to witness stock specific activity
We like Kotak Mahindra Bank, State Bank of India (SBI), Bajaj Finance, Tata Motors, Dr Reddy, Titan Company in large caps while in midcaps we prefer Ashok Leyland, Abbott, Ingersoll Rand, Thermax, Indian Hotels, Havells, Granules, NHPC, Nocil, Brigade Enterprises
The broader market relatively outperformed the benchmark while maintaining higher high-low formation in the weekly chart over the third consecutive week. The formation of higher high along with improved market breadth compared with earlier pull backs since April, measured by percentage of stocks above 50 DMA (~48%) strongest in two months) indicating broad based participation. Thus, dips should be capitalised on to accumulate quality midcaps.
Bank Nifty Outlook
The Bank Nifty witnessed profit booking amid global volatility on high inflation in the US. The index closed the week down by 1.3% at 34682 levels. The weekly price action formed a small bear candle signaling healthy and shallow retracement after a strong up move of 3000 points in the preceding three weeks. Index is seen forming a higher base above the recent falling trend line breakout area joining highs since April 2022
Going ahead, we reiterate our positive stance as we expect the index to maintain positive bias and head towards 36000 levels in the coming weeks being the confluence of the high of June 2022 and the 61.8% retracement of the previous major decline (38765-32290)
The index over the past four sessions has retraced just 61.8% of preceding four sessions up move (33757-35543) highlighting a shallow retracement. The last four sessions profit booking has also led to a cool off in the daily stochastic (currently at 20). Hence, we believe the current breather should not be seen as negative instead dips towards 34000 levels should be used as an incremental buying opportunity for the next leg of up move towards 36000 levels in the coming weeks.
Key observation in the recent market correction and during the last three-week pullback is that the Bank Nifty is relatively outperforming the Nifty. It is also highlighted in the Bank Nifty/Nifty ratio chart as it is seen breaking above the falling supply line joining recent highs highlighting strength and continuation of the current outperformance
Index has key support placed around 33500 levels as it is the 61.8% retracement of the recent up move (32290-35543)
Among the oscillators, the weekly stochastic remain in strong up trend thus supports the overall positive bias in the index
(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.