Ashika Stock Broking continues to maintain a positive stance on Nifty, with an upside target of 18,600 by CY22. BFSI, IT, auto and capital goods sectors are expected to outperform and they are likely to lead the rally, says Tirthankar Das, technical & derivatives analyst, retail, at Ashika Stock Broking.
Das has more than 10 years of experience as a research analyst in equities, commodities and derivative analysis.
Bank Nifty has immediate support around the 38,000 levels as it is the confluence of the 50 EMA (currently placed at 37,800) and the 61.8 percent retracement of the correction since October 2021 (41,829-32,155).
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Global factors are keeping the market range-bound though the Nifty has recouped significantly from its June lows. What is the possibility of the Nifty crossing 18,600, the record high?
Nifty has rallied close to 18 percent since the low of 15,183, hit in June 2022. The current rally has been the strongest since October 2021 on a time-study basis. The breakout is well supported by a sequential improvement in market breadth, with the percentage of stocks trading above the long-term 200 DMA showing significant progress. The Nifty has also seen a bullish golden crossover in August (50-DEMA crossing above 200 DEMA), implying a major shift in momentum from a medium-term perspective.
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Markets, the world over, have seen profit-booking in the past two weeks, post the Fed Chairman’s statements while our markets have managed to hold on to the important support levels and have relatively outperformed global markets.
Equity markets in India and the US have taken a divergent path over the current period. In July, the correlation coefficient for both these markets had hit a 17-month high. Indian markets have withstood the latest global sell-off, which further validates that a decisive move beyond the psychological level of 18000 is likely to commence.
Improvement in India’s weight in the MSCI Emerging Market Index, rise in equity trading volumes, a sharp revival in foreign portfolio investor (FPI) inflows, sharp decline in crude oil prices and India VIX drifting lower are all indicating that the market is heading towards an all-time high.
As per technical charts, what are the sectors going to take the lead, if the index moves beyond the previous highs?
We continue to maintain a positive stance on Nifty, with an upside target of 18600 by CY22. It will be led by the BFSI, IT, auto and capital goods sectors, which are expected to outperform.
Banking and capital goods stocks continue to relatively outperform the benchmark index and are expected to continue their relative outperformance, going forward.
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IT stocks have been showing initial signs of a pullback, after the recent sharp correction. They are rebounding from key support areas, thus providing bargain-buy opportunities.
The auto index continues to remain in a firm uptrend and it has breached the multi-year breakout area. Hence, the current outperformance is likely to continue.
Do you think the performance of the broader markets will remain strong in the coming months, in comparison with the benchmarks?
The percentage of stocks above the 200 DMA of the Nifty 500 universe recorded an extreme low reading of 14 at the June low of 15200. Subsequent rallies in the Nifty have seen a minimum 20 percent from the lows on such occasions.
At present, the strong momentum in the market, over the last few weeks, has pulled more than half of the stocks on the broader NSE500 index above their 200 DMA – a technical indicator signalling long term trends.
About 307 stocks or more than 60 percent of the Nifty500 index traded above 200DMA, the highest in the last four months, suggesting there is room for more upside amidst intermittent corrections and hence it is likely to be broad-based.
What are the technical charts indicating about the IT space?
The IT index has corrected over 30 percent from its all-time-high of 39,446. The long-term chart, since 2007, shows that the rally has taken place amidst a rising channel, has provided the necessary breakout and is now at a point to retest the arrangement.
At present, the index is at a critical juncture where a pullback seems immense. On the shorter time-frame, a Class B positive divergence in the daily chart can be seen. This is illustrated by prices making a double bottom, with an oscillator tracing a higher second bottom.
Do you think the banking index is likely to hit 45,000 in the coming year?
The Bank Nifty has immediate support around the 38,000 levels as it is the confluence of the 50 EMA (currently placed at 37,800) and the 61.8 percent retracement of the correction since October 2021 (41,829-32,155).
Hence, one can expect further buying interest to emerge and one can use the dips as an incremental buying opportunity. Though the weekly 14-period RSI, after a strong rally is in overbought territory, a retracement of the recent upmove from here on would make the market healthy.
Since October 2020, the index has unfolded an ABCD harmonic pattern. The confirmation of this pattern will be deemed valid at a successive trade above 38,765 and it will challenge the all-time high of 41,800 in the coming months.
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