By Dharmesh Shah
In the week gone by equity benchmarks extended gains over the second consecutive week despite elevated volatility spooked by surging second wave of COVID-19 across India. The Nifty concluded the week at 14823, up 1.3%. Broader market relatively outperformed as Nifty midcap, small cap surged 1.3% and 2%, respectively. Sectorally, metal, pharma and IT remained in limelight while realty underperformed
Nifty technical outlook
- Despite Monday’s gap down opening index managed to hold last week’s low of 14400 and staged a strong pullback during the week, displaying inherent strength. The weekly price action formed a bull candle at identical lows of 14420, highlighting elevated buying demand as our buy on dips strategy worked well.
- Going ahead, we reiterate our positive stance on the market and expect Nifty to eventually head towards life-time high of 15400 in the month of May 2021. However, move towards 15400 would not be linear in nature, as bouts of volatility owing to escalating concerns over COVID-19 2nd wave. Therefore, intermediate dips toward 14600 should be capitalised as an incremental buying opportunity in quality large and midcaps amid progression of Q4FY21 result season
- Key point to highlight during recent secondary corrective phase is that, the index has witnessed shallow retracement, indicating robust price structure that augurs well for next leg of up move. Over past 6 sessions, Nifty has retraced 61.8% of preceding five session’s ~900 points up move, which is larger in magnitude compared to the early March rally of 868 points.
- Sectorally, we expect BFSI, Pharma, Metal to outperform while Consumption provide favourable risk-reward setup
- Amongst Large caps, we prefer Axis Bank, Bajaj Finserve, Cadila Healthcare, Ambuja Cement, Tata Steel, Bharti Airtel, Tata Motors while Mindtree, Alkem, Jindal Steel & Power, Supreme Industries, Escorts are expected to outperform within midcap space
- In line with our view, broader market relatively outperformed the benchmark as Nifty midcap and small cap indices have resolved out of two months consolidation and clocked a fresh 52 weeks high whereas Nifty is still 4% away. Therefore, we expect broader markets to endure ongoing relative outperformance amid progression of Q4FY21 result season
- Structurally, we believe index has formed a higher base around 14200 mark that has been held despite elevated volatility owing to concern over second Covid-19 wave. We expect index to hold 14200 mark going ahead as it is confluence of:
a) Lower band of falling channel at 14200
b) 100 days EMA placed at 14265
c) Last month’s low is placed at 14151
Bank Nifty outlook
- The weekly price action formed a bull candle with shadows in either direction, indicating elevated volatility as the index is forming higher base above the 61.8% retracement of previous two week up move (30405-34287).
- We reiterate our positive stance with target of 34900 levels, in May’21 as it is the 61.8% retracement of the entire last two months decline (37708-30405). While in the upcoming truncated week any decline towards 32000-32400 would attract strong buying demand
Key point to highlight is that over the past seven sessions the index has retraced just 61.8% of preceding seven sessions up move (30405-34287). The slower pace of retracement indicates a higher base formation.
- The slower pace of retracement after the recent up move of 3880 points, which is the larger in magnitude compared to late February up move of 2256 points highlights robust price structure and the current consolidation should be used as an incremental buying opportunity in quality banking stocks
- The index has immediate support at 32000-31500 levels being the confluence of the last two weeks low and the 61.8% retracement of the current up move (30405-34287). While the major support is placed in the range of 30500-30000 levels
- The index has maintained the rhythm of not correcting more than 20% as witnessed since March 2020. In the current scenario, it rebounded after correcting 19% from the all-time high (37708). Hence it provides favourable risk-reward setup for the next leg of up move
- Among the oscillators, the weekly stochastic is in uptrend and placed at a reading of 52 thus supports the continuation of the pullback in the index in coming weeks
(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 22/04/2021 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