Buying interest seen in mid small-caps; Mehul Kothari of AnandRathi bets on Indiabulls Housing

Market Outlook

On the downside; intermediate supports are at 14900 and 14600 for Nifty50. A weekly close below 14600 could be a damaging factor in the coming 3 – 4 weeks, says Kothari.

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After a significant upside when the heavyweights go through some profit-booking, the buying interest is diverted towards mid and small caps, Mehul Kothari, AVP – Technical Research at AnandRathi said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) It was a week of consolidation for Indian markets but the good part is that there is a lot of buying support at lower levels. What led to the price action?

A) If we look at the move from Feb 1, 2021, to Feb 5, 2021, the benchmark index Nifty50 surged by almost 1,300 points and the NiftyBank index rallied by over 6,000 points.

With a price action like that in such a short time span, the recent consolidation was well on cards. This was mainly on the back of some profit taking by market participants.

However, Nifty held its ground and was able to protect the 15,000 mark since the undertone is still bullish. Even after the event, there has been constant buying by the FIIs in the cash segment.

Barring the latest session on Friday, FIIs bought more than Rs 8,000 crore worth of equities during the week.

Q) Small & Midcaps also consolidated but overall they remain fairly stable in the week gone by. What led to the price action and any interesting stock charts you are seeing in the broader market space?

A) If we observe a few broader market indices like Nifty Smallcap 100, Nifty Midcap 100, we can conclude that both these indices were lagging behind the benchmarks with a considerable margin.

In fact, Nifty Midcap 100 recently cleared its peak of 2018 and Smallcap 100 is still very far from its 2018 top.

Thus, some outperformance has been seen in them off late. In addition, this is a general phenomenon that post a significant upside, when the heavyweights go through some profit booking, the buying interest is diverted towards mid and small caps.

On the stock front, we like Indiabulls Housing with a time frame of around three months. Recently, the stock managed to close well above it 200-days SMA and 200-days EMA after July 2018 and that was the first clear sign of strength.

The stock has also started making higher lows on a larger scale which adds more conviction to our bullish view.

Medium-term payers can accumulate Indiabulls Housing Finance in the range of Rs 236 – 220 with a stop loss of Rs 190 for an upside target of Rs 300. Momentum would pick up once the stock starts trading above Rs 250 mark.

Q) Which are the important levels that one should track in the coming week for Nifty and Nifty bank? And data points which one should watch out for?

A) For Nifty, the key level to watch out for is the range of 15400 – 15600. From the current levels towards this zone, we expect some kind of short creation or distribution in the market which can lead to a considerable fall like the previous month. Reason being that the mentioned zone is the placement of 161.8% Fibonacci retracement of the entire crash from 12,430 to 7,511 seen in 2020.

Thus we would turn very cautious in case of any further upside from here on. On the downside; intermediate supports are at 14,900 and 14,600.

A weekly close below 14,600 could be a damaging factor in the coming 3 – 4 weeks. With regards to the Nifty Bank index, the current ratio of the banking index to Nifty is at 2.40.

The zone of 2.40 – 2.50 is a strong hurdle, and that indicates that it will take a lot from the banking index to outperform the benchmark.

A move above 36,600 would extend the rally towards the 38,000 mark whereas, breach of 35,400 would trigger some profit booking in the banking space.

Q) Please suggest 3-5 trading ideas for the next 3-4 weeks with a target and stop-loss along with rationale?

A) Here is a list of trading ideas for the next 3-4 weeks:

NESCO: Buy | LTP: Rs 615 | Stop Loss: Rs 565 | Target: Rs 715 | Upside 16%

Recently, the stock confirmed a breakout on the daily chart from the pattern which resembles a bullish inverted head and shoulder. The theoretical target for the pattern comes around Rs 720.

On the weekly scale, RSI (14) has confirmed a range breakout above 60 mark with the strong placement of ADX (14). The mentioned technical evidence indicates bullish bias. Hence, traders can buy the stock with the above trade setup with a time frame of 3 – 5 weeks.

Nippon Life India: Buy | LTP: Rs 325 | Stop Loss: Rs 295 | Target: Rs 385|  Upside 18%

The stock is currently hovering near the flat line of the ‘ICHIMOKU’ indicator. Generally, whenever a stock sustains above this line we have seen a sharper move on the upside.

In addition, during January 2021 the stock confirmed a breakout above Rs 327 level which is the swing high of July 2020. The stock has been consolidating since.

The target of this breakout comes around Rs 400 mark. Also, we are witnessing a Hammer kind of candlestick pattern which was formed in the previous week and dictates strength.

Traders are advised to buy the stock in the range of Rs 335 – 325 with a stop loss of Rs 295 for the upside potential target of Rs 385 in 3 – 5 weeks.

ICICI Prudential Life: Buy | LTP: Rs 487 | Stop Loss: Rs 467 | Target: Rs 527 | Upside 8%

The stock confirmed a major breakout above Rs 487 mark from its previous swing high during the month of December 2020 after it made a top of Rs 537 and corrected from there. Now, the stock is again hovering near the breakout point.

The placement of ADX and RSI on the daily scale suggests some fresh upside from here on and the risk-reward ratio is very lucrative at this point in time. Thus we advise traders to buy the stock with a stop loss of Rs 467 for an upside target of Rs 527 in the next 2 – 3 weeks.

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