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Technical indicators suggest some caution in small midcap space: Aditya Agarwala of YES Securities

Technical indicators suggest some caution in small midcap space: Aditya Agarwala of YES Securities
August 02
13:02 2021

Broader markets continue to outperform the headline indices, however, the move is getting stretched and both the indices are approaching their respective pattern resistance trendlines which suggest that the uptrend may pause or enter a minor corrective phase in the coming weeks.

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Technical indicators, such as RSI, also entering overbought territory on a higher time frame chart which confirms the uptrend in small & midcap space may witness minor correction or consolation soon, Aditya Agarwala, Senior Technical Analyst, YES Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) The Nifty50 remained volatile throughout the week, but it managed to close above 15800 levels for the week. What led to the price action on D-Street?

A) The week gone by was high on volatility as bulls yet again failed to push the Nifty50 Index beyond the key resistance level of 15,900-15,950 which triggered profit booking mid-week dragging Nifty lower to test the lower end of the range at 15,500.

However, bulls did manage to pull it back towards the upper end of the range, therefore, the index remains in a broad range locked between 15,950 on the upside and 15,500 on the downside.

Q) FIIs remain net sellers pulling out more than Rs 19000 cr from the cash segment of the Indian equity markets. What is leading to panic in FIIs and what does the options data suggest?

A) FII’s have been net sellers for the month of July and this can be attributed to the fact that the US FOMC review meeting on monetary policy was due on Tuesday of the week gone by, though the US FED was expected to keep key interest rates intact, FIIs were closely following comments on rising inflation amid an increase in fresh Covid-19 cases following the Delta variant.

In the last meeting, the US FED had hinted at taper talks, which had sent markets worldwide into a tailspin as investors dumped equities and rushed to other asset classes such as bonds.

Interest rate hikes by the US Federal Reserve typically lead to a reversal of FII inflows from emerging markets to developed markets.

Moreover, options data suggest that the index might remain in a tight range for the time being between 15,900-15,700 with key support at 15,500.

Q) What is your call on small & midcaps which have remained slightly more resilient?

A) Broader markets continue to outperform the headline indices, however, the move is getting stretched and both the indices are approaching their respective pattern resistance trendlines which suggest that the uptrend may pause or enter a minor corrective phase in the coming weeks.

Moreover, a technical indicator such as RSI is also entering overbought territory on higher time frame chart which confirms the uptrend may witness minor correction or consolation soon.

Q) Sectorally, metal showed a strong move on Thursday, and for the week as well (Nifty Metal up nearly 8%). What is fuelling the rally in metal space?

A) The Nifty Metal Index finally managed to break out in unchartered territory with gains of 7.8% in the week gone by, following a brief corrective phase.

Stocks within the sector have been outperforming as earnings have seen a steady improvement quarter on quarter amid an improved business outlook for the sector.

Also, there were reports of China imposing more export duties, between 10 percent and 25 percent on steel products including hot-rolled coils with effect from August 1 which fuelled the sudden rally in the metal sector. A sustained trade above 5500 on the Nifty Metal will extend the up move to levels of 6000.

Q) Based on rollover data and price action – what are your expectations from the August series? Can we hit fresh record highs or will there will be some pressure considering it will be an IPO-heavy month that could extract liquidity?

A) Rollover both on Nifty and Bank Nifty have been slightly lower than the previous months and price action remains range-bound with key supports between 15,600-15,500 and resistance at 15,900-16,000.

The Nifty index is expected to remain range-bound in the first half of the month as VIX has cooled off after a recent spike in volatility, however, towards the second half volatility might see a revival in volatility with the Index eventually breaking out of this tight range.

Q) Your 3-5 trading ideas for the August series?

A) Here is a list of trading ideas for the August series –

L&T: Buy| LTP: Rs 1601| Target: Rs 1750| Stop Loss: Rs 1520| Upside 9%

The stock has resumed its uptrend after breaking out from a narrow consolidation phase and trendline resistance on good volumes. Technical indicator, RSI, turning upwards beyond the 60-level that suggests extended upside in the stock.

Power Finance Corporation: Buy| LTP: Rs 129| Target: Rs 142| Stop Loss: Rs 124| Upside 10%

The stock is on the verge of a breakout from an Ascending Triangle pattern, a successful breakout from the pattern on good volumes will resume the uptrend.

Further, RSI has also turned upwards making higher lows suggesting bullishness.

Godrej Properties: Buy| LTP: Rs 1602| Target: Rs 1800| Stop Loss: Rs 1520| Upside 12%

The stock continued to make higher highs and higher lows. Further, it has broken out of a consolidation phase confirming bullishness. RSI is also confirming an extended uptrend in the stock.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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