Edited excerpts from an interview:
We saw Nifty and Nifty Bank throwing up contrasting pictures last week. Technically, how do you read this and what are the charts looking like for both indices in the week ahead?
Nifty is closer to the all-time high of 18,887 and last week’s move was backed by gains seen in FMCG stocks like ITC, Tata Consumer, and oil major Reliance. Meanwhile, banking stocks, especially ICICI Bank, Kotak Bank, HDFC Bank, and SBI, which collectively have 39% weightage in Nifty50 dragged, preventing Nifty from an outright breach of record peak. While Nifty kept finding new leaders, helping to overcome the brakes applied by the banks, Bank Nifty had no such luxury, being a sectoral index, constituting only banks. So, though Bank Nifty had reached the record peak much earlier than Nifty, momentum has been missing for quite some time now.
Meanwhile, some of the Bank Nifty heavyweights have shown signs of reversal, and with Friday’s recovery just short of crossing the 50-DMA, we are inclined to investigate the prospects of yet another attempt to get to the upside trajectory. Thursday’s drop also led oscillators to ease sharply, providing room for a bounce back in the next few days. However, for prospects beyond that, it must be noted that standard deviation studies point to a shrinking trading range, from over 1,500 points on either side of the 20-DMA to just around 1000 points for more than a month now. This, along with the ratio of 50DMA to 200-DMA stretching far, a mean reversion move is likely, limiting our upside expectations, and will soon be weighing the prospects of a plunge towards 41,700.
Nifty on the other hand appears more positive, and we could begin the week with expectations of 19,000-19,070 as a base case scenario and 19,200 as an optimistic case. Alternatively, an outright fallback below 18,770 will force us to rethink the upside prospects, though a plunge is less likely.
Nifty IT has started to outperform. How strong is the uptrend?
The BSE IT index was dragged down by TCS and Wipro, which formed 48% of the Index, both of which had stock-specific triggers going against the tide. The largecap and midcap stocks in the BSE IT index contribute 95% to the index. Apart from TCS and Wipro, 75% of the stocks in the Large and Midcap IT segment closed with an average gain of ~3% this week. This leads us to believe that this week’s fall could be a stock-specific drag and the underlying sentiment still remains positive corroborated by the MF data for the month of May which showed the highest inflow into IT stocks.The Realty index was the biggest sectoral winner in the week with many stocks at a 52-week high level. Do you see signs of the rally being overheated?
The realty index saw a decent run-up this week backed by buying in majors like Macrotech, DLF, Godrej Properties, Oberoi Realty, and Prestige which contributes around 80% to the NSE Realty Index. Even though the overall outlook for the realty space remains bullish, momentum indicators like RSI are signaling an overbought situation for the stocks warranting some consolidation in the short term. So, while the sector still remains a “buy”, the approach needs to be calibrated to find more value.
Which are the top 3-4 ideas for the week ahead?
1) APTECHT
View: Buy
Entry range: 505 – 496
Target: 520 – 545
Stoploss: 486
The stock has been moving within a broadening wedge pattern on daily charts and since the beginning of this month, it has been coming off the upper trendline resistance of the wedge pattern. It has formed a hammer candle near the rising trendline support of the wedge pattern along with an exhaustion signal from the MACD forest indicator encouraging us to look for a strong reversal aiming for 545 in the next three to four weeks. All longs may be protected with stop-loss placed below 486 levels.
2)ICICIGI
View: Buy
Entry range: 1255 – 1220
Target: 1350 – 1440
Stoploss: 1160
After touching an all-time high of 1,675 in Sep 2021, the stock has been witnessing profit booking since then. The stock recently bounced off the 61.8% Fibonacci retracement level of the listing day low and all-time high. Also, the MACD indicator in the monthly time frame is about to cross the signal line and stock has successfully closed above the declining trendline resistance of 1,174 which supports our assumption of a strong move in the next two to three months. We expect the stock to move towards the 1,350 and 1,440 levels. All longs may be protected with a stop loss placed below 1,160. A buy-on-dips approach may be employed.
