By Dharmesh Shah
Equity benchmarks concluded the truncated last week on a subdued note amid elevated volatility owing to surging Covid-19 wave 2 across India. The Nifty ended the week at 14341, down 1.8%. The broader market place comparatively outperformed as Nifty midcap lost 1% though tiny-cap remained flat. Sectorally, pharma and metal remained outlier though consumption, IT and Infra underperformed.
Despite anxiousness about surging COVID-19 instances across India, the index managed to hold the crucial help threshold of 14200 on several occasions more than previous six weeks, as the elevated obtaining demand emerged in the vicinity of one hundred days EMA placed at 14170. As a outcome, weekly price tag action index formed a higher wave candle, indicating elevated volatility at crucial help base of 14200.
Going ahead, we count on index to resolve greater and steadily head towards upper band of falling channel placed at 14800 in the coming months. Our constructive thesis on the market place is based on the following observations:
- Since March 2020, Nifty and BankNifty has a maintained rhythm of not correcting more than 9% and 20% respectively. With each indices approaching price tag sensible maturity of correction, we count on BankNifty to drive Nifty greater as financials carries 38% weightage in Nifty
- Key point to highlight through previous two months corrective phase is that, the decline has been captured in a effectively define falling channel. Over previous two weeks, index has been forming a base at reduce band of falling channel. We count on index to resolve greater and head towards upper band of channel placed at 14800.
Sectorally, We choose BFSI, IT and Consumption sectors to participate in pullback offered their favourable threat-reward setups.
On the stock front, inside Amongst significant caps, we like TCS, Axis Bank, HDFC, Bajaj Finserv, Tata Steel though Astral Poly, Polycab, Graphite, Jindal steel& Power, Thermax, Sequent Scientific, Indoco Remides , InfoEdge, are anticipated to outperform in midcap space.
The broader market place indices have shown resilience by forming a greater base above 50 days EMA, which has been held given that June 2020. Key point to highlight is that, the Nifty midcap and tiny cap indices have maintained the rhythm of not correcting for more than typical 10%, given that March 2020, indicating robust price tag structure. Currently, each indices have corrected 8% from their 52 weeks higher. We count on each indices to preserve their rhythm of not correcting for more than 10% and steadily accelerate its relative outperformance against benchmark. Therefore, dip should really be made use of as incremental obtaining chance.
Structurally, crucial help is placed at 14200. Only the breach under 14200 would lead to extended correction towards powerful help zone of 13900-13800, as it is a confluence of:
- a) 80% retracement of the February rally (13596-15432), at 13963
- b) 10% correction from life highs (15432) measures about 13900
Bank Nifty outlook
Bank Nifty on the weekly time frame formed a bull candle with shadows in either path highlighting intraweek volatility. Index regardless of Monday’s gap down opening managed to hold close to the last week low (30500) and steadily recovered its whole intraweek decline to close marginally reduce highlighting obtaining demand at reduce levels amid oversold placement of the weekly stochastic.
Going ahead, we reiterate our view that the downsides is restricted in Banking index and we count on it to ultimately head towards 34000 levels in the coming month as it is the confluence of the 50% retracement of the whole decline (37708-30405) and measuring implication of the last two weeks consolidation variety (32325-30405). Hence, one should really accumulate excellent banking stocks in the variety of 30500-31200 to ride next anticipated up move.
Key point to highlight is given that March 2020 bottom, the index has maintained rhythm of not correcting for more than 20%. In the existing situation, the index is forming greater base soon after correcting 19% from the all-time higher (37708). Bank Nifty in the last two weeks has rebounded 3 instances soon after testing the help region of 30500. Hence the index is poised at critical help and delivers favourable threat-reward setup.
The last 10 weeks corrective decline has led to the weekly stochastic placed close to the oversold territory with a reading of 22 indicating an impending pullback in the coming weeks.
(Dharmesh Shah is the Head – Technical at ICICI Direct. Please seek advice from your economic advisor ahead of investing.)
ICICI Securities Limited is a SEBI registered Research Analyst obtaining registration no. INH000000990. It is confirmed that the Research Analyst or his relatives or I-Sec do not have actual/effective ownership of 1% or more securities of the topic business, at the finish of 22/04/2021 or have no other economic interest and do not have any material conflict of interest. I-Sec or its associates may possibly have received any compensation towards merchant banking/ broking services from the topic providers talked about as clientele in preceding 12 months.