By Dharmesh Shah
The equity benchmark edged higher while enduring its relatively outperformance against the global peers. The Nifty settled the week at 18534, up 25 points. The broader market continued to outperform as Nifty midcap surged 1.6% while small cap gained 3%. Sectorally, consumption, pharma, realty outshone while energy, financials relatively underperformed.
The index started last week with a bullish gap (18,500-18,619) and resolved above the upper band of consolidation placed at 18,500. Subsequently, the index took a breather after a recent sharp up move. As a result, weekly price action formed a small bear candle carrying higher high-low, indicating continuation of upward momentum amid stock specific action as the broader market relatively outperformed.
Going ahead, we reiterate our constructive stance and expect NSE Nifty 50 to gradually retest the lifetime highs of 18,887 in the next few weeks. In the process, we expect broader market to relatively outperform the benchmark and expect midcap index to rally ~25% in next three to four quarters based on following observations:
The broader market has been relatively outperforming the benchmark as midcap index recorded breakout from 18 months consolidation while small cap index has come out of one year consolidation, highlighting structural turnaround. 5-year consolidation breakout on Nifty Midcap 100 ratio line against Nifty 500, signifies acceleration in upward momentum of midcaps. Similar breakout in CY14 was followed by 25% rally in Nifty Midcap 100 over next 12 monthsKey point to highlight is that, since March Nifty has not corrected for more than 400 points while sustaining above its 20 days EMA. Thus, any dip from hereon should not be construed as negative instead dips should be capitalized to build portfolio of quality stocks with strong earning from medium term perspective
Strong macros like Earnings, GDP & GST data print, foreign fund flows remain key supporting factors while onset and progression of monsoon remain key monitorable in coming weeks from inflation perspective.
Nifty 50 Chart
Structurally, formation of higher high-low on the monthly chart signifies elevated buying demand that makes us confident to revise support base at 18,200 as it is 80% retracement of current up move (18,060-18,662) coincided with past two week’s low of 18,178. Sectorally, we expect stocks from BFSI, Midcap IT, PSU Banks, Auto, capital goods and discretionary to lead the outperformance
On stock front, in large cap we prefer SBI, LTIM, Ambuja Cements, Apollo Hospitals, Maruti Suzuki, Hindalco, Titan, Sun Pharma are in focus while in midcap stocks, Cochin Shipyard, Mphasis, Vardhman Textiles, Minda Corp, Brigade Enterprises, L&T Finance, Escorts, AIA Engineering remain in focus.
The Bank Nifty consolidated in a range and closed the week marginally lower by 0.2% at 43,937 levels amid soft global cues. The weekly price action formed a small bear candle signaling consolidation around the 44,000 levels for the third consecutive week after the recent strong up move of 15% points in the last two months
Going ahead, we expect the index to maintain positive bias and gradually head towards 44,900 levels in the coming weeks being the measuring implication of the recent range breakout (44,150-43,400). We believe stock specific action will be in focus with PSU banking stocks outperforming.
Bank Nifty chart
The up move towards 44,900 levels would be in a non-linear manner as bouts of volatility after the last two months’ strong up move cannot be ruled out, dips should be used as a buying opportunity. Bank Nifty in the weekly time frame has witnessed a faster retracement of the 14 weeks decline (44151-38,613) during December 2022 – March 2023 in just seven weeks. Faster retracement in just half the time interval indicating structural improvement from medium term perspective.
On relative terms, Bank Nifty continues to outperform the Nifty. The Bank Nifty/Nifty ratio line continues to trend higher and maintain higher high-low signalling extended period of outperformance. The index has immediate support at 43,400 levels being the confluence of the last two weeks’ identical lows and the 50% retracement of the recent up move (42,582-44,151). Among the oscillators, the weekly 14 periods RSI remain in uptrend thus supports the overall positive bias in the index.
(Dharmesh Shah, Head – Technical, ICICI Securities. Views expressed are author’s own. Please consult your financial advisor before investing.)
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