Nifty likely to retest 18600 all-time highs, Bank Nifty may touch 40000 ahead of Union Budget

By Dharmesh Shah

Equity benchmarks endured their winning streak over a fourth consecutive week as Nifty gained 2.5% to settle the week at 18256. The broader market relatively outperformed as Nifty midcap, small-cap indices surged ~3%, each.

Technical Outlook

• On expected lines, index resolved higher and surpassed past two months high of 18200. As a result, weekly price action formed a bull candle carrying higher high-low, signifying acceleration of upward momentum. In the process, small cap index scaled to fresh all time high after October 2021
• The elongation of rallies backed by multi sector participation and improving market breadth signifies inherent strength that makes us confident to reiterate our positive stance and expect Nifty to retest life time high of 18600 in the run up to Union Budget 2022. Therefore, any dip from hereon would offer an incremental buying opportunity as we do not expect Nifty to breach 17800 levels in coming weeks.
• Key point to highlight on the broader market front is that, Nifty small cap index has witnessed a faster pace of retracement as it entirely retraced past 10 weeks corrective phase in just three weeks, indicating structural improvement. Also the market breadth has seen significant improvement as 74% of Nifty 500 constituents are trading above 50 days EMA compared to mid-December reading of 49%, that augurs well for durability of ongoing up move. Thereby we expect broader market to endure their relative outperformance in coming weeks. 
• We expect BFSI, PSU, Infra and Capital goods to outperform, while Metals & Auto are poised with favourable risk-reward 
• In large caps we like Reliance, Infosys, SBI, Bajaj Finserv, Siemens, JSW Steel, Tata Motors, Ambuja Cement while in Midcaps we prefer Canara Bank, Deepak Nitrite, Vardhman Textiles, Bharat Electronics, PNC Infra, India Cement, NMDC, Granules, Sobha Developers, Pricol Ltd
• Structurally, the formation of higher peak and trough on the weekly and monthly chart signifies elevated buying demand, that makes us confident to revise support base in the range of 17800 as it is confluence of:

a) 80% retracement of current up move (17655-18272), placed at 17778

b) current week’s low is placed at17879

Nifty Chart

Bank Nifty Outlook:

• The Bank Nifty extended gains for third successive week ahead of start of earnings season. The PSU banking space outshined with gain of 4% as compared to private banking index inching up by 1.5% for the week. The Bank Nifty closed the week at 38370, up by 631 points or 1.65%
• The price action during the week resulted in a small Bull candle with small upper shadow indicating a breather or minor profit booking after massive 4100 points gain registered in just 10 trading sessions, which pushed the momentum oscillator like stochastics in overbought trajectory and warranted some temporary breather.
• Going forward, our structural positive stance on Bank Nifty remains intact with next target of 40000 expected in the run-up to the Union Budget 2022, which is the 80% retracement of the entire decline (41829-34018) 
• Index has resumed its uptrend after 20% correction, as anxiety around impact of third covid wave subsided. Therefore, any breather in coming week should not be construed negative rather would offer incremental buying opportunity as we enter the Q3 earnings season. Buying the decline strategy should work well in coming earnings season as we expect Bank Nifty index to hold strong support of 37500 levels being the confluence of the following technical observations:
• (a) 23.6% retracement of the current up move (34018-38851)
• (b) the recent breakout area is placed around 37500 levels

(Dharmesh Shah is the Head Technical Analysis at ICICI Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)

Disclaimer:
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 14/01/2022 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.