Nifty Outlook- 18600 on cards again; watch volatility amid global uncertainty

Nifty Outlook: 18600 on cards again; watch volatility amid global uncertainty

By Dharmesh Shah

Market Outlook

Technical Outlook

The Nifty started the eventful week with a positive gap 17786-17910 and continued to march northward during the week. As a result, Nifty approached our intermediate target of 18100. The weekly price action formed a small bull candle carrying higher high-low, indicating continuance of positive biasGoing ahead, we reiterate our constructive stance and expect the Nifty to challenge the all-time high of 18600 in the coming couple of weeks. In the process, bouts of volatility owing to global uncertainty should be used as an incremental buying opportunity as it will help short term indicators to cool off the overbought conditions. Our positive stance on the market is anchored upon following observations:Breakout from 12 month’s falling trend line confirms conclusion of corrective bias, in turn, suggesting resumption of the primary up trendOver the past two decades, Q4 returns for the Nifty have been positive (average 11% and minimum 5%) on 15 out of 21 occasions (70%). History favours buying dipsIndia VIX, which gauges market volatility, has recorded five month’s range breakdown and is trading below 16, indicating low risk perception among market participants Indian equities continued to relatively outperform their global peers, showing inherent strengthUS indices oversold: Percentage of stocks above 200-dma for S&P500 and Nasdaq has approached bearish extremes of 15 and 12. Over 2 decades, readings below 15 and 12 have led to meaningful durable bottoms. We therefore expect US indices to pose technical pull backs from oversold readingsUS Dollar/INR pair retreated from upper band of long term rising trend line placed at 83.30 while Dollar index has faced stiff resistance from decade long resistance trend line placed around 115Sectorally, we expect BFSI, PSU, Infra and Telecom to outperform. BSE PSU index logged a resolute breakout from decade long downward slanting channel, indicating structural turnaroundOn the stock front, our preferred large caps are Reliance Industries, SBI, Bajaj Finserv, Coal India, TCS, Hindalco, L&T, Tata Motors, Adani Ports while preferred midcaps are Concor, Union Bank, Action Construction, Torrent Pharma, Jindal Stainless, Cochin Shipyard, Indian HotelsStructurally, breakout from one year falling trend line confirms structural improvement that augurs well to revise support base at 17500 as it is 50% retracement of past three week’s rally 16950-18178The Nifty midcap index resolved out of five weeks base formation above 100 days EMA. We expect, broader market indices to accelerate upward momentum and witness catch up activity against the Nifty amid advancement of earning season

Nifty Chart

Bank Nifty Outlook:

The Bank Nifty traded in a range and closed marginally higher during the previous week to gain for the fifth consecutive week. The index closed at 41258 levels, up by 0.7%. PSU banking stocks on expected lines continue to outperform with the PSU bank index closing the week higher by 3%. The weekly price action formed a Doji candle with shadows in either direction signalling consolidation after recent strong up move of 11% in the preceding five weeksGoing forward, we reiterate our positive stance as we expect the index to surpass the all-time high (41840) and extend the current up move towards 42900 levels in the coming weeks being the 123.6% external retracement of the recent breather (41840-37386). Dips on account of global volatility should not be constructed as negative instead should be used as a buying opportunityNifty PSU banking stocks continue to outperform and the PSU bank index has recently posted a resolute breakout above CY21 highs and past five years down trend line indicating strong structural uptrend. While large caps have seen strong traction, we expect smaller PSU banks to catch-up and witness strong upward momentumStructurally, in the Bank Nifty rallies are getting faster and stronger while corrections are shallow, underpinning inherent strength. It has recently generated a faster retracement on higher degree as eight month’s decline (41829-32990) was completely retraced in just two and half months highlighting robust price structureThe Bank Nifty has support at 39800 mark being the confluence of the (a) 38.2% retracement of the last four weeks up move (37387-41677) placed at 39850 (b) the 10 weeks EMA currently placed at 39850 levels

(Dharmesh Shah is the Head – Technical at ICICI Securities Limited. The views expressed are author’s own)