Nifty may top 16,300 this week, Bank Nifty 36,600 in coming months; Infosys, IndiGo, Axis Bank top bets

Nifty has maintained the rhythm of not correcting for more than three consecutive weeks since April 2020, signifying inherent strength. Image: Reuters

On expected lines, Nifty regained upward momentum after approaching maturity of price/time wise correction. The buying demand emerged from an elevated support base of 15600 that helped index to resolve out of past five weeks consolidation (15900-1500). As a result, our buy on dips strategy worked well. The weekly price action formed a bull candle with small lower shadow, indicating resumption of primary up trend. In the process, broader market indices continued to outperform the benchmark and clocked a fresh all-time high.

– The index has maintained the rhythm of not correcting for more than three consecutive weeks since April 2020, signifying inherent strength. The breakout from prolonged consolidation indicates rejuvenation of upward momentum that makes us believe; Nifty would challenge the psychological mark of 16000 in the coming truncated week and eventually head towards our revised target of 16300 in coming month. In the process, temporary bouts of volatility would offer incremental buying opportunity. Thus, dips from hereon should be capitalised on to accumulate quality stocks amid progression of Q1FY22 earning season. Our earmarked target of 16300 is based on following observations:
a) Implied target of recent consolidation (15900-15500) breakout is placed at 16300
b) 138.2% extension of mid-June rally (15450-15915), projected from July low of 15633, placed at 16284
– On the sectoral front, we expect BFSI, IT, Infra, Realty and Metals to lead the rally while Auto and Consumption space provides margin of safety at current levels
– Our preferred large cap picks are Axis Bank, Bajaj Finance, Infosys, Asian Paints, Hindalco, Ultratech Cement, M&M while, in midcaps we like Havells, Birla soft, Vardhaman Special steel, Mahindra life, Indocount industries, Glenmark Pharma, PNC Infra, Sandhar Technologies, Interglobe aviation
– The Nifty midcap and small cap indices endured their relative outperformance against benchmark. Formation of higher peak and trough supported by strong market breadth signifies inherent strength which augurs well for durability of ongoing up move
– Structurally, the breakout from past one month consolidation has confirmed the strong higher base formation at 15600-15500 zone which we do not expect to breach as it is confluence of:
a) 80% retracement of June-July rally (15450-15962), at 15500
b) 10 weeks EMA placed at 15560

Bank Nifty Outlook

– The index gained for the second consecutive week and closed higher by 2%. The weekly price action formed a bull candle with a higher high-low and a close at the upper band of the last six weeks range (35800-34000) signalling strength and continuation of the up move on expected lines
– Going ahead, we expect the index to challenge psychological mark of 36000 in coming truncated week and eventually head towards 36600 in coming month as it is the confluence of the previous major high of March 2021 and the 138.2% external retracement of the last six weeks’ breather (35810-33908)

– In line with our view the index is seen generating a breakout above the last six weeks range as price action has been contracting over past three weeks suggesting that breakout from this consolidation is approaching. We expect index to breakout on the higher side given shallow retracement and robust price structure
– The formation of higher high-low in the weekly time frame gives us confident to revise the support base higher towards 34800 being the confluence of the following technical observations:
a. The 80% retracement of the current up move (34632-35985) placed at 34900
b. The value of the rising demand line joining major lows since May 2020 is placed around 34850
c. The rising 50 days EMA is also placed at 34790 levels
– Among the oscillators the weekly stochastic has cooled off from the overbought territory and has generated a buy signal moving above its three periods average thus validates positive bias in the index

(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