Chart structure suggests both midcap and smallcap indices will remain rangebound: Aditya Agarwala of YES Securities

Market Outlook

Chart structure suggests that both midcap and smallcap indices will remain rangebound going ahead as they have entered a consolidation phase, Aditya Agarwala, Senior Technical Analyst, YES SECURITIES said in an interview with Moneycontrol’s Kshitij Anand.

Edited Excerpts –

Q) Sensex, Nifty tested crucial support levels and then bounced back but still closed in the red. What led to the price action on D-Street?

A) Nifty50 continued to make lower lows for three weeks in a row as traders became jittery amidst steady rise in Covid-19 cases and measures taken by several state governments to curb the spread leading to a temporary halt in the various economic activities.

Bulls did make sure that the Nifty doesn’t break the crucial trendline support at 14,100-14,060. Moreover, the index has been oscillating in a falling wedge pattern and while prices are making lower lows technical indicator RSI is making higher low which is a positive divergence indicating that the downtrend is losing steam.


Q) Small & midcaps have been more resilient in the week gone by. What led to the price action, but there are certain stocks which fell in double digits?

A) Broader markets bounced back from the support line of recent lows as investors continue to bet on stocks in the midcap and smallcap space.

However, chart structure suggests that both Midcap and Smallcap indices will remain rangebound as they have entered a consolidation phase. However, stock-specific outperformance may continue led by their quarterly results.

Q) Sectorally, consumer durable, power, realty indices were the top losers in the week gone by. What led to the price action?

A) Devastating second wave of Covid-19 in India has led to several state announcing various forms of restrictions, including a state-wide curfew, weekend lockdowns and night curfews, to curb the surge in COVID-19 infections which has halted several business activities, which in turn may lead to a slowdown in the economy if the lockdowns and curfews prolong further.

This had an impact on the economy-facing stocks and sectors resulting in an underperformance in the realty and power. Further, consumer durables also took a hit because of slowing demand and transportation restrictions due to lockdowns.

Q) Nearly 50% of IPOs listed in 2021 have gone below the issue price. What should investors do – time to buy them on dips or avoid?

A) Investors should wait for the dust to settle down before looking at buying into the newly-listed stocks on dips. Buying or averaging these stocks is like catching a falling knife which could be dangerous.

Q) Any important levels which investors should watch out for in the coming week. Which are the important resistance and support levels?

A) On the Nifty-50 Index, traders/investors should closely watch for support levels placed between 14,200 and 14,100 on the downside which happens to be the lower end of the wedge pattern.

On the upside, the index is facing a hurdle at the downtrend line placed at 14,450, a successful breakout from this trendline could trigger short covering rallies to levels of 14600-14,650.

Q) What should be the strategy of investors amid volatility due to rise in COVID cases, falling in rupee, economic activity taking a hit etc.?

A) The Nifty-50 index is going through a corrective wave within an uptrend, investors should keep a watch on the support levels and use these volatile times and corrections to accumulate stocks in tranches which are fundamentally strong.

Q) FIIs turned net sellers for the first time in 6 months. What is causing the panic?

A) The economic activity, which had gradually started to pick up pace after the first wave of Covid-19, got another jolt from the onslaught of the second wave of Covid-19, with the slowing business activity and prolonged lockdowns/curfews in several states

FIIs have become cautious on the growth which has led them to pull out some money from the emerging market like India.

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