Nifty to head towards 200 DMA placed at 16600, Bank Nifty may hit 36000 in coming weeks; Buy SBI, HDFC Bank

By Dharmesh Shah

Equity benchmarks extended gains over the third consecutive week amid decline in crude oil and industrial commodities tapering down inflation worry. The NSE Nifty 50 ended the volatile week at 16221, up 3%. Broader markets performed in tandem with the benchmark as Nifty midcap, small cap rose over 3%, each.  Sectorally, all major indices ended in green led by financials, consumption, realty.

Nifty Technical Outlook

In line with our view, NSE Nifty 50 resolved higher and surpassed our intermediate target of 16200 on the backdrop of sharp decline in crude oil prices and India VIX that supported bullish sentiment. The index started the week on a positive note and endured its upward momentum during the week, despite global volatility. As a result, weekly price action formed a bull candle carrying higher high-low, indicating continuance of positive momentum. 

Going ahead, we reiterate our positive stance and expect the Nifty to gradually head towards 200 DMA placed at 16600 in coming weeks. In the process, intraweek dips towards 15800-15900 should be used as an incremental buying opportunity as we believe strong support for the Nifty is placed at July low of 15500. Our constructive stance on the Nifty is based on following observation:

a) The index has logged a resolute breakout from downward sloping trend line (drawn adjoining April-June highs), indicating conclusion of two months’ corrective phase  

b) Current pull back is qualitatively better as compared with earlier pull backs since April in terms of market breadth (measured by percentage of stocks above 50 DMA (51%) strongest in two months indicating broad based participation)

c) our target of 16600 is based on 50% retracement of CY22 decline (18350-15183) coincided with 200 days EMA

Amongst sectors, BFSI, IT, Auto, Consumption and capital goods are preferred while Pharma to witness stock specific action

We prefer SBI, HDFC bank, Infosys, Tata Motors, DLF, L&T, Titan in large caps while in midcaps we prefer ABB, SKF, Persistent, Apollo Tyres, M&M Finance, Bajaj Electricals, Phoenix Mills, CCL Products, Indian Hotels, Kansai Nerolac

The broader market indices mirrored benchmark move and formed a higher high-low over second consecutive week signifying buying demand at elevated support base. Both Nifty midcap, small cap indices are regaining upward momentum after witnessing slower pace of retracement of mid- June up move. We expect the broader market to endure their pullback from the oversold zone in coming weeks. Thus, dips should be capitaslied to accumulate quality stocks.

Bank Nifty Outlook

The Bank Nifty witnessed strong up move during previous week to close at 35124 levels up by 4.6% on weekly basis. The up move was broad based as both PSU and private banking stocks closed with healthy gains. The weekly price action formed a strong bull candle with a higher high-low signaling continuation of the up move. The index in the process has generated a breakout above the falling supply line joining the highs of April 2022 and June 2022 indicating end of the last three-month corrective phase

Going ahead, we expect the index to maintain positive bias and gradually head towards 36000 levels in the coming weeks as it is the confluence of:

a) the high of June 2022 is placed at 36083 levels

b) 61.8% retracement of the last 3 months’ decline (38765-32290) is also placed around 36200 levels

Key observation in the recent market correction and during the last three-week pullback is that the Bank Nifty is relatively outperforming the Nifty. It is also highlighted in the Bank Nifty/Nifty ratio chart as it is seen breaking above the falling supply line joining recent highs highlighting strength and continuation of the current outperformance

The move towards 36000 will not be in a linear manner as bouts of volatility owing to volatile global cues cannot be ruled out. Amidst elevated volatility, we expect buying dips strategy to continue to fare well. Use intraweek dips towards 33800-34000 as an incremental buying opportunity in quality banking stocks

The formation of higher high-low in the weekly time fame make us confident to revise the support base higher towards 33500 levels as it is the confluence of the last week low and the 61.8% retracement of the current up move (32290-35262)

Among the oscillators, the weekly stochastic has recently generated a buy signal moving above its three periods average thus supports the 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 17/06/2022 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.