Nifty looks set to hit 17,200, Bank Nifty may hit new high of 37,700 in coming month; HDFC, RIL top bets

Going ahead, we expect the index after the recent healthy base formation to breakout above the upper band of the range (36300) and head towards 37700 levels in the coming month. Image: Reuters

By Dharmesh Shah

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Equity benchmarks regained upward momentum and witnessed the highest weekly closing on Nifty at 16705, up 1.5%, last week. The broader market indices snapped past two weeks’ corrective phase and relatively outperformed the benchmark as Nifty midcap, small cap rose 2%, each. Sectorally, IT, metal, financials outshone while auto took a breather

Nifty technical outlook

– The Nifty started the week on a buoyant note and gradually scaled to a fresh all time high of 16713. The weekly price action formed a small bull candle carrying higher high-low, indicating resumption of upward momentum after last week’s breather. In the process, on expected lines broader market indices have maintained the rhythm of maturity of price/time wise correction

– Going ahead, we reiterate our consecutive stance as we expect the index to resolve above past two weeks’ consolidation (16700-16400) and gradually head towards our revised target of 17000-17200 in the coming month aided by firm global cues. Thereby any volatility from here on would present an incremental buying opportunity to own quality large and midcap stocks. Our target of 17000-17200 is based on following observations:
a) Implicated target of past two weeks consolidation (16700-16400) is placed at 17000
b) Since January 2021, twice Nifty has seen 1800 points rally (during Jan-Feb=1835 points and Apr-Jun=1764 points). – In current scenario, Nifty would complete 1800 points move at 17200 projected from June low of 15450.
– Sectorally, we expect IT, Infra, Capital goods and Consumption to outperform, while BFSI & Auto stocks are poised for technical pullback from oversold trajectory
– On the stock front, we like Axis Bank, HDFC, United Spirits, Titan, Reliance Industries, Ambuja Cement, Info Edge in large cap, while in Midcaps we prefer Persistent System, Bajaj Electricals, Timken, Fortis, Trent, Grindwell Norton, Orient Cement, Navin Fluorine, Mahindra Logistics.
– In line with our view, Nifty midcap and small cap indices maintained the rhythm of not correcting for more than 10% and arresting corrective phase within 3 weeks in a row. In current scenario as well, both indices have arrested corrective phase within 3 consecutive weeks after correcting 6% & 10%, respectively from their all-time highs. The supportive efforts in the vicinity of 50 days EMA make us believe the broader market indices would undergo base formation that would pave the way for next leg of up move
– Structurally, the formation of higher peak and trough on the larger degree chart makes us confident to retain support base at 16100, as it is confluence of:
a) positive gap recorded on August 4 (16131-16176)
b) 10 week’s EMA is placed at 16120
c) past three week’s low is placed at 16162

Bank Nifty Outlook

– The Nifty Bank witnessed a rebound after previous week decline and closed the week higher by more than 1.5%. The weekly price action formed a high wave candle with a long lower shadow signaling strong support at lower levels around 34800-34500 levels
– Going ahead, we expect the index after the recent healthy base formation to breakout above the upper band of the range (36300) and head towards 37700 levels in the coming month as it is the confluence of the measuring implication of the recent range (36300-34800) and the previous all-time high of February 2021
– In the smaller time frame the index in the last 15 sessions has retraced just 61.8% of its previous five sessions up move (34115-36219). A shallow retracement highlights a higher base formation and a positive price structure

– We do not foresee index to breach strong support of 34500. Buying the declines strategy has worked well over past 15 months. Hence, any corrective decline in the coming week would offer incremental buying opportunity in quality banking stocks. The support base of 34500 is the confluence of the
a) 80% retracement of the current up move (34115-36317) placed around 34500 levels
b) rising 20 weeks EMA also placed around 34614 levels
c) the last two weeks’ lows are also placed 34800 levels
– Among the oscillators, weekly stochastic rebounded from the neutral reading of 50 and is seen forming a base above its average thus validates positive bias

(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