Nifty resistance at 17600, Bank Nifty to hit 40300 in coming weeks; Infosys, Tata Steel may help pocket gains

By Dharmesh Shah

Equity benchmarks ended the volatile week on a subdued note as Nifty lost 0.8% to end the week at 17375. The broader market relatively underperformed the benchmark as Nifty midcap, small cap lost 2% and 4%, respectively. Sectorally, metal, PSU Banks outshone while FMCG, IT, Realty relatively underperformed

Nifty Technical Outlook

The index witnessed an elevated volatility in the eventful week wherein buying demand emerged from 80% retracement of late January up move placed at 17028. As a result, the weekly price action formed a small bear candle with shadows on either side, indicating breather amid stock specific action.

The escalated geopolitical tension had led to spike in crude oil prices and the Dollar index. We believe, this would trigger elevated volatility in the equity market. In the process, we expect strong support for the Nifty is placed around January low of 16800. In the coming week, India VIX (which gauges the market sentiment) will be the key monitorable, as cool off in India VIX would provide support for the market and lead to prolongation of ongoing consolidation in the broader range of 17600-16800 amid stock specific action. In the process, 17600 would act as immediate resistance as it is confluence of:
a) 80% retracement of early February decline (17794-17044), placed at 17644
b) Last week’s high is placed at 17640    

Structurally, despite recent elevated volatility the Nifty managed to hold the key support threshold of 16800, highlighting buying demand at elevated support base. Thus we believe, ongoing volatility would find its feet around 16800 in the coming weeks as it is confluence of:
a) 80% retracement of December-January rally (16410-18350), placed at 16798
b) Panic low recorded in January 2022 is placed at 16836

Sectorally, BFSI would remain in focus as we expect banking stocks to endure its resilience, while dip in Metals, Capital goods, auto should be capitalised as buying opportunity. In large caps we like Axis Bank, Tata Steel, Infosys, Siemens, Maruti Suzuki, Ultratech Cement while in Mid Caps we prefer Federal Bank, Trent, Balrampur Chini, NMDC, JSW Energy, Redington, Laurus Labs, VIP Industries.

The broader market indices relatively underperformed the benchmark in the week gone by which hauled Nifty midcap and small cap index in the vicinity of 100 days EMA. We believe extended breather from hereon would make broader markets healthy wherein stock specific action would continue.

Bank Nifty Outlook

The Bank Nifty traded in a range with high volatility and closed the week marginally lower by 0.5%. The weekly price action formed a high wave candle with long shadows in either direction highlighting intraweek volatility. However, on expected lines buying demand emerged around the support area of 37500 during previous week.

Going ahead, we expect the index to hold above the support area of 37500 and gradually head higher towards 40300 levels in coming weeks being the confluence of the 80% retracement of the November-December 2021 decline (41829-34019) and the 161.8% external retracement of the recent breather (38855-36375).

The overall structure in the index remain positive any dips in the coming week should not be seen as negative instead will provide incremental buying opportunity in quality banking stocks. The index has immediate support at the 37500 levels being the confluence of the following technical observations:

a) 50 days EMA (currently at |37690) 
b) the 61.8% retracement of the previous up move (36375-39424)
c) the last week low is also placed at 37319 levels

Among the oscillators the weekly 14 periods RSI is seen forming a base above its nine 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 21/01/2022 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.