By Dharmesh Shah
Equity benchmarks snapped a two-week winning streak amid broader consolidation. The Nifty settled 1.9% down at 17758.80 while Midcap and small-cap indices corrected 2% and 1.3% respectively. Metals bore a sharp cut of 5% followed by Realty, Banking and Pharma each correcting 2-3% for the week. IT and Auto relatively outperformed.
- The index reacted from higher band of ongoing consolidation (18200) last week resulting in bear candle and in the process approached lower band of past four week’s price action, which also coincides with 50day EMA (currently placed at 17700). Consequently, the daily and weekly stochastic oscillators also noticeably cooled off to approach oversold trajectory with readings below 30
- Going forward, we expect Nifty to extend its ongoing consolidation amid lack of faster retracement on either side while holding its key support threshold of 17500 levels, while stock specific outperformance will continue as markets are undergoing a healthy sectoral churn post Q2 earnings
- Over past 18 months, Price-wise Nifty has maintained the rhythm of not correcting for more than 7-9% while holding its 50 days EMA and time-wise intermediate corrections have got arrested within four to five weeks, barring one instance. As index has already corrected 5.5% over past four weeks, we expect index to hold 17500 and attract incremental buying demand as larger structural uptrend remains intact. Hence, dips should be capitalised on to accumulate quality stocks across large and midcaps segments
- Sectorally, Capital goods, Telecom, Auto are expected to outperform while BFSI provide favourable risk-reward setup. Pull backs in Metal space are expected to be short lived
- In large caps we prefer Reliance, HDFC, SBI, Bharti Airtel, L&T, Tata Motors, SBI Life, Tech Mahindra, while in Midcaps we like Cyient, Coforge, Dixon, ABFRL, Gokaldas Exports, Carborandum Universal, Brigade Enterprises, Greaves Cotton, Jamna Auto, Fortis Healthcare, Radico Khaitan, SCI, TCI Express, NRB Bearings
- The broader market indices are relatively outperforming despite extended profit booking in the benchmark. Currently, both indices are forming a higher base above 50 days EMA that has been held since June 2020, highlighting robust price structure. We expect Nifty midcap and small cap indices to extend their consolidation amid lack of faster retracement on either side and witness stock-specific action
Structurally, the formation of higher peak and trough on the monthly chart signifies a robust price structure that makes us believe that ongoing breather would find its feet around 17500-17600 range as it is October 2021 low which is placed at 17452 and value of rising 10-week moving average placed at 17500 levels
Bank Nifty Outlook:
- The Bank Nifty declined for the second consecutive week and closed down by 2%. The weekly price action formed a bear candle as the index after last four weeks’ corrective decline is currently testing the crucial support area of 37800. Consequently, the daily and weekly stochastic oscillators also noticeably cooled off to approach oversold trajectory with a reading below 25
- Key observation is that the index since April 2020 has not corrected for more than four-five weeks barring one instance while 50 days EMA has acted as strong support during each of the corrective phase. In the current scenario with four weeks of decline already behind us, we expect the index to maintain the rhythm and form a higher base around the 50 days EMA
- Going ahead, we expect the index to enter into a consolidation in the broad range of 37500-39100 amid stock specific action.
- The index has already taken 17 sessions to retrace just than 80% of the preceding 16 sessions up move (36876-41829). A shallow retracement highlights a positive structure and a higher base formation. Hence we believe the current breather should not be seen as negative instead it should be capitalized to accumulate quality banking stocks for the next leg of up move. Buying on dips strategy has worked well on multiple occasions in the last 18 months.
- On the higher side the last week high of 39100 which also coincides with the 38.2% external retracement of the entire last four week’s breather (41829-37748) is likely to act as immediate hurdle for the index
- The support for the index is placed at 37800-37500 levels being the confluence of:
- 80% retracement of the previous major up move (36876-41829) placed at 37870 levels
- The upper band of the recent seven months range breakout area
- The rising demand line joining lows since May 2021 is also placed at 37600
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 18/11/2021 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.