Bank Nifty continues to outperform Nifty 50; Bank Nifty targeting 44,900, Nifty to retest lifetime high of 18,887 By Dharmesh Shah The equity benchmark recouped last week’s losses and settled the monthly expiry week on a positive note. As a result, the domestic market relatively outperformed the global peers, despite uncertainty around global economic slowdown coupled with concerns regarding US debt ceiling deal. The Nifty settled the week at 18499, up 1.6%. In the process, midcaps relatively outperformed by gaining 2.6% for the week. Sectorally, IT, pharma, metal remained at forefront while financials relatively underperformed. Going ahead, we reiterate our constructive stance and expect the Nifty to gradually retest the lifetime highs of 18887 in the coming month. In the process, we expect the broader market to relatively outperform underpinned by 18 months consolidation breakout leading Midcap index to clock a fresh All Time High. Thus, any dip from hereon should be used to build a quality portfolio from a medium term perspective. Our positive stance is further validated by following observation: Sectorally, we expect stocks from BFSI, IT, Auto ancillary, capital goods and discretionary to lead the outperformance. On stock front, in large cap we prefer Reliance industries, SBI, TCS, Maruti Suzuki, United Spirits, Titan, DLF are in focus while in midcap Coforge, L&T finance, Gabriel India, Syngene, KEC, Siyaram Silk Mills, PI Industries, IDFC First Bank remain in focus. The Midcap index logged a breakout from eighteen months consolidation and recorded fresh all time high, indicating resumption of structural up trend. In the process, small cap index is still 17% away from its All Time High. Thus, we expect broader market to relatively outperform the benchmark in coming weeks. Structurally, formation of higher high-low on the monthly chart signifies elevated buying demand that makes us confident to revise support base at 18,200 as it is 80% retracement of current up move (18,060-18,508) coincided with 20 days EMA placed at 18,198. The Bank Nifty traded in a range with high volatility and closed the week marginally higher by 0.1% at 44,018 levels amid mixed global cues. The weekly price action formed a high wave candle with a long lower shadow signalling consolidation around the 44,000 levels for the second consecutive week after the recent strong up move of 15% points in the last two months. Going ahead, we expect the index to surpass the all-time high and gradually head towards 44,900 levels in the coming weeks being the measuring implication of the last nine sessions range (44,150-43,400). However, the up move towards 44,900 would be in a non-linear manner as bouts of volatility after last two months strong up move cannot be ruled out, dips should be used as a buying opportunity Key observation in the weekly chart of Bank Nifty is that it has witnessed a faster retracement of the 14 week decline (44,151-38,613) during Dec ’22-Mar ’23 in just seven weeks. Faster retracement in just half the time interval indicating structural improvement from medium term perspective. On relative terms, Bank Nifty continues to outperform the Nifty. The Bank Nifty/Nifty ratio line continues to trend higher and maintain higher high-low signalling extended period of outperformance. The index has immediate support at 43,400 levels being the confluence of the last two weeks identical lows and the 50% retracement of the recent up move (42,582-44,151). Among the oscillators, the weekly 14 periods RSI remain in uptrend thus supports the overall positive bias in the index. (Dharmesh Shah, Head Technical, ICICI Securities. Views expressed are author’s own. Please consult your financial advisor before investing.)
However, he believes that the impact on the Indian market is going to be temporary since there could be some short-term impact on flows into Indian equity markets. But since the Indian economy is on a strong wicket and will continue to remain resilient.
“Improved fiscal situation, controlled current deficit, stable interest scenario combined with good corporate earnings should lead to limited impact on the Indian bond market and equity market too,” he added.
The midcap and smallcap indices took a bigger knock with the BSE MidCap fell 2.51%, while BSE SmallCap index dived 4.18%. According to Amnish Aggarwal, head, research, Prabhudas Lilladher, the valuations were already high and some correction was expected. “If the situation sustains as it is then further correction can’t be ruled out,” Aggarwal said.
Telecommunication and industrials indices were the top laggards with BSE Telecommunication declining 3.82%, followed by BSE Industrials falling 3.26%. JSW Steel (-2.99%), Tata Steel (-2.52%) and Tata Consultancy Services (-2.44%) were the top losers of Sensex.
Surprisingly, both foreign portfolio investors and domestic institutional investors were net buyers today. While, FPIs net bought shares worth Rs 252.25 crore, DIIs have purchased shares worth Rs 1,111.84 crore, as per provisional data from exchanges.
Calling this a “normal phenomena” Pankaj Pandey, head, research, ICICI Direct said, “I will not really give too much weight to a single day buying figure. Amid concerns of elevated interest rate and geopolitical tensions, in a typical market cycle, 8-10% correction is possible at any point in time.”
The brunt of geopolitical conflict, elevated interest rates and rising crude oil prices was also felt by other Asian- Pacific markets. Jakarta Composite Index lost 1.57% followed by Shanghai Composite Index and PSEi, which fell 1.47% and 0.89%, respectively. Nikkei and KOSPI declined 0.83% and 0.76%.