By Dharmesh Shah
Equity benchmark extended breather over third consecutive week tracking volatile global cues. The Nifty settled the week at 19,428, down 0.5%. Meanwhile, the broader market outperformed, as Nifty Midcap, Small cap gained ~0.5%, each for the week. Sectorally, PSU Banks, Metal, IT and Media remained at forefront while FMCG, financials took a breather.
Key point to highlight since June 2022 is that, index has not witnessed bear candles for more than 3-4 weeks in a row. In the current scenario, we expect the index to maintain the same rhythm of time wise correction as Nifty has already corrected over the past three weeks. Thus, buying on dips would be the prudent strategy as key support is placed at 19,200 levels.
Structurally, secondary correction is the part of the secular bull market. Thus dips should not be construed as negative, instead it should be used as incremental buying opportunity as we believe ongoing healthy retracement would find its feet around key support of 19,200 being confluence of:
61.8% retracement of current up move (18,645-19991), at 19,16050 days EMA is placed at 19,242July month’s low is placed at 19,234
On the broader market front, the midcap index has continued to march northward and clocked new All Time High over 12th weeks in a row, highlighting strength. However, past five months remarkable >30% rally hauled weekly stochastic oscillator in overbought territory while breadth indicator (% of stocks above 200 DMA) has approached overbought condition (placed at 91), suggesting possibility of temporary breather at higher levels can not be ruled out. Thus, focus on accumulating quality stocks in a staggered manner. Sectorally, BFSI, Pharma, Power, PSU and metal will remain in focus in upcoming truncated week.
On stock front, in large cap we prefer Reliance Industries, TCS, Canara Bank, United Spirits, Tata Steel, Dr Reddy, Titan while in midcap Coforge, Union Bank, Exide Industries, Hudco, Jindal Steel and Power, CAMS, KNR Construction, KPR Mills, Kalpataru Power will remain in focus.
Nifty Chart
Bank Nifty Outlook
The Nifty Bank index extended its decline amid profit booking for a third successive week and relatively underperformed even as RBI maintained the status quo. PSU Banks outperformed private peers as Nifty PSU Banking index gained 3%. The Nifty Bank index closed at 44,199, down 1.52% or 680 points for the week.
The price action during the week resulted in a sizable bear candle with lower high-low sequence indicating continuation of corrective bias and helped prices to work out of an overbought trajectory while discounting sticky inflation and status quo on interest rates in near future. In the coming truncated week, we expect the index to consolidate in the 43,500-45,000 range as earnings season peters out and find strong buying support around 43,800-43,500 as index is approaching maturity of price/time correction. We recommend to buy dips with more focus on PSU banks.
Key observations:
38.2% retracement of entire rally since March lows (38,613-46,369)Value of rising 100-day ema at 43,829June swing low at 43,345Time wise, since June 2022 lows index has not formed more than three consecutive bear candles. With three bear candles behind us we expect index to bounce back from key support
PSU Banking index is at the cusp of multi-year breakout and seen relatively outperforming. We expect this relative outperformance to further amplify in coming months.
(Dharmesh Shah – Head Technical, ICICI Direct. Views expressed are the author’s own. Please consult your financial advisor before investing.)
