Bank Nifty to touch 36,200 this week, Smallcap index may hit new record high; RIL, Infosys strong on charts

The small cap index to challenge the all-time high which is just 2% away

By Dharmesh Shah

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Nifty Outlook: Equity benchmarks extended their record-setting spree over the second consecutive week, as Nifty scaled to new highs of 15733 in the previous week. Nifty settled the week at 15670, up 1.5%. Broader market relatively outperformed as Nifty midcap and small cap gained 3.3% and 2.4%, respectively. Sectorally, barring IT, all other indices ended in green led by auto, metal, PSE and realty

Nifty technical outlook

– The Nifty started the week on a firm note and gradually resolved higher toward our earmarked target of 15700. The weekly price action formed a strong bull candle carrying higher high-low, signifying acceleration of upward momentum. Key point to highlight during the week is that, the India VIX (which gauge the market sentiment) has declined to six-month lows ~14, indicating subsiding anxiety related to COVID implication.
– The follow through strength post faster pace of retracement (past 10 weeks decline entirely retraced in just five week) backed by improving market breadth signifies robust price structure that makes us believe Nifty will eventually resolve above 15700 mark and extend the rally towards our revised target of 16100 in June 2021. However, we believe a move toward 16100 would be nonlinear in nature as round of temporary breather after the 1,150 points rally (seen over past 3 weeks) cannot be ruled out. Therefore, any dip from hereon should be capitalised as incremental buying opportunity as we do not expect index to breach the strong support of 15200 levels. Our extended target of 16100 is based on following observations:
a) Price parity of post budget rally (13597-15432), projected from April low of 14151, placed at 16055
B) Past two months consolidation (15140-14150) breakout target is placed at 16120
– Sectorally, BFSI, Auto, IT, Consumption and Infra to lead the rally
– On the stock front, we prefer Infosys, Reliance Industries Ltd, Bajaj Finance, Kotak Mahindra Bank, Adani Ports and Special Economic Zone, Titan Company, GAIL in large cap, while Escorts, Ashok Leyland, Trent, JK Tyres, Voltas, Container Corporation of India (Concor), Hindustan Zinc, Thermax, L&T Infotech, Mahindra Life, Nocil are preferred midcap picks
– Broader market indices relatively outperformed the benchmark as Nifty midcap and small cap indices scaled to a fresh 52 weeks high. The outperformance in the broader market indices has been backed by improving market breadth as currently ~87% of index components are trading above their 50 days EMA compared to April reading of ~60%. We expect, small cap index to challenge the all-time high which is just 2% away

A move toward 16100 would be nonlinear in nature as round of temporary breather after the 1,150 points rally cannot be ruled out.

– Structurally, the formation of higher high-low backed by rejuvenation of market breadth signifies inherent strength that makes us confident to revise support base at 15200 as it is confluence of:
a) 61.8% retracement of past three week’s rally (14885-15733), at 15209
b) past two week’s low is placed at 15145

Bank Nifty outlook

– The index gained for the third consecutive week as it traded in a range with positive bias. The weekly price action formed a high wave candle carrying higher high-low, indicating continuance of positive bias amid stock specific action
– Going forward, we reiterate our positive stance with target of 36200 in coming weeks as it is the confluence of the 80% retracement of the entire last three months corrective decline (37708-30405) and the price parity with previous up move (30405-34287) as projected from the recent trough of 32115 signalling upside towards 36200 levels
– Key observation is that the index has gained for third consecutive week for the first time in the entire corrective decline of the last three months highlighting improving price structure

Bank Nifty index has witnessed a sharp rally of more than 11% in just 15 sessions, which has led to weakly stochastic at overbought territory

– The index has witnessed a sharp rally of more than 11% in just 15 sessions, which has led to weakly stochastic at overbought territory with a reading of 92. Hence, a temporary breather at higher levels cannot be ruled out. – However, we believe such a breather should not be seen as negative instead it should be capitalised to accumulate quality banking stocks for up move towards 36200 in the coming weeks
– The formation of higher high-low on the weekly chart signifies elevated buying demand that makes us confident to revise the support base higher towards 34400-34000 levels as it is confluence of:
a. The 38.2% retracement of the current up move (32115-35810) placed at 34400
b. The recent breakout area and the April high (34287).
c. The rising 50 days EMA placed at 33900 levels

(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