By Dharmesh Shah
Equity benchmarks extended pullback over a second consecutive week backed by firm global cues. Nifty ended the week at 17511, up 1.8%. In the process, the broader market relatively outperformed the benchmark as Nifty midcap, small cap surged 3% and 4%, respectively. Sectorally, metal, auto, realty remained at forefront while pharma took a breather.
Technical Outlook
On expected lines, the index maintained the rhythm of not correcting for more than 11% since May 2020 as elevated buying demand emerged from 100 days EMA (which has offered incremental buying opportunity on couple of occasions since June 2020) that helped index to stage a strong pullback and settle near upper band of consolidation placed at 17500. The weekly price action formed a bull candle carrying higher high-low, indicating the continuance of positive bias. Going ahead, we remain constructive on the market as we expect Nifty to challenge the upper band of consolidation placed at 17500 and gradually head towards psychological mark 18000 in coming weeks. Our constructive thesis is based on following observation:
- Price-wise index has maintained the rhythm of not correcting for more than 11% since May 2020. Time-wise, index has arrested secondary correction within 9 weeks. In current scenario, with 8 weeks’ correction along with 10%correction behind us we believe index would eventually witness a breakout from past two weeks’ consolidation
- Current rally from last week low (16782-17543=761 points) is now bigger than early November pullback (17613-18210=597 points) supported by across sector participation, indicating structural improvement.
After 650 points rally seen over past three sessions, couple of days breather cannot be ruled out. However, such breather should not be construed as negative instead dips should be capitalised on to build a quality portfolio as we do not expect index to breach the key support threshold of 16800. Our projection of target of 18000 is confluence of:
- 61.8% retracement of entire decline since October high (18600-16782) is placed at 16900
- Implicated target of past two week’s consolidation (17500-16900) is placed around 18000
Sectorally, Capital goods, Real estate and IT expected to continue outperformance while BFSI, Auto and Metal are poised with favourable risk-reward setup. In large cap space we like Reliance, SBI, Bajaj Finserv, TCS, Asian Paints, Tata Steel, Tata Motors, Siemens while in Mid cap space we prefer Astral Limited, Bata India, Cummins India, Sanghvi Movers, Canara Bank, Tata Chemical, IRCTC, Zensar Technologies, Fortis Healthcare, JSL, Minda Corp, VIP Industries.
Broader market indices are expected to extend their relative outperformance as they have resolved out of strong base formation near 50-dema with improvement in market breadth as currently 54% of midcap index components are trading above 50 days EMA compared to last week’s reading of 35, highlighting rejuvenation of upward momentum.
Bank Nifty Outlook
The Bank Nifty traded with positive bias and closed the week higher by 2.5% amid firm global cues. The weekly price action formed a bull candle with a higher high-low after six weeks signaling positive bias as the index rebounds after a healthy base formation around the 200 days EMA (currently placed at 35360).
Index in the previous week resolve above last two weeks range (35300-36800) and also closed above the falling channel containing the entire corrective decline thus opening upside towards 38500 levels in the coming weeks being the confluence of the previous breakdown area and 50% retracement of the entire decline (41829-35328).
The index has seen a rebound during the previous week after 6 weeks of corrective decline thus maintained the rhythm of rebounding after 6-8 weeks of corrective phase as seen since April 2020 signaling continuation of the overall positive structure.
Nifty Bank has immediate support at 35300 levels being the confluence of the 200 days EMA and the 80% retracement of the August-October 2021 rally (34115-41829). Among the oscillators the weekly stochastic has generated a buy signal moving above its three periods average thus validates the continuation of the current pullback in the coming weeks.
(Dharmesh Shah is the Head Technical at ICICI Securities. Views expressed are the author’s own. 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 10/12/2021 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.)