Nifty falls on profit-booking near 20k, buy on dips; Bank Nifty expected to head towards 46,800

Nifty falls on profit-booking near 20k, buy on dips; Bank Nifty expected to head towards 46,800

By Dharmesh Shah

India’s outperformance continued against developed markets and emerging markets. In the process, Nifty clocked a lifetime high of 19,991 and settled the week at 19,745, up 0.9%. The Nifty small cap index relatively outperformed the benchmark by gaining 1.8% for the week. Sectorally, financials, pharma, energy outperformed while IT, realty took a breather.

Going ahead, follow through strength above last week’s high of 19,991 would lead to an extension of rally towards 20,200. Failure to do so would lead the index to undergo healthy consolidation in the 20,000-19,500 range ahead of the FOMC meet and monthly expiry week amid progression of earning season. Key point to highlight is that, over the past fifteen sessions Nifty has rallied >1100 points which hauled daily and weekly stochastic oscillators in overbought conditions, indicating possibility of extended profit booking in recently run up stocks can not be ruled out. Thus, dips should be utilized to accumulate quality stocks as strong support for the Nifty is placed at 19,500. Our positive bias is further validated by following macros:

Globally, key development was a breakout in DJIA and Russell2000 (Small cap index) from seven-month consolidation amid onset of earnings. Indian midcaps have positive correlation with developed markets midcap indices in long run;The USD/INR pair is on the verge of contracting triangle breakdown placed around Rs 82;FIIs inflows have remained persistent amid weakness in the US Dollar index.

On the broader market front, Nifty midcap recorded a fresh all-time high while small cap is still 4% away from its lifetime highs. The current up move is backed by sturdy market breadth as currently 79% stocks are trading above 200 DMA, highlighting inherent strength.

Sectorally, BFSI, PSU, Pharma, Consumption are expected to do well. Especially, consumer discretionary is at extremely favourable risk-reward set up as relative ratio chart of BSE Consumer discretionary against BSE Sensex has approached lower band of past five years upward sloping channel. We expect the sector to bottom out in coming months. On stock front, in large cap we prefer HDFC Bank, SBI, TCS, Tata Motors, United Spirits, Divi’s Laboratories, L&T, Grasim while in midcap Alkem, AIA Engineering, Zensar Tech, BEML, Indiamart, GMDC, Bank of Maharashtra, Gabriel will remain in focus.

Structurally, since March buy on dips strategy has continued to fare well as Nifty has not corrected more than 400 points while sustaining above 20 days EMA. Thus, any decline from hereon should not be construed as negative instead capitalize it as an incremental buying opportunity. Thus, we revise our support base upward at 19,500, being confluence of:

38.2% retracement of current up move (18,645-19,991), at 19,478;20 days EMA is placed at 19,425;Since March index has not closed below previous weeks low. Last week’s low was placed at 19,562.Nifty ChartBank Nifty Outlook

The Bank Nifty outperformed benchmarks amid onset of earnings. PSU banks relatively outperformed private peers. The Bank Nifty closed at 46,075, up 2.8% or 1256 points. The Weekly price action formed a strong bullish candle after two week’s breather and led the index to new life highs.

We maintain positive bias in the index and expect it to gradually head towards 46,800 levels as it continues with higher high-low formation on multiple time frames. Use dips as a buying opportunity.

Structurally, PSU banks are expected to relatively outperform as the PSU banking index is poised for multi-year breakout indicating structural turnaround. Correction in PSU stocks remains a buying opportunity. Key short-term support is now being revised upwards to 45,200 being last Tuesday’s low that coincides with rising 20-day average that has been held on multiple occasions since March 2023.

(Dharmesh Shah – Head Technical, ICICI Direct. Views expressed are the author’s own. Please consult your financial advisor before investing.)