Nifty range-bound, to trade in broad range of 18400-18900, small-caps to outperform; Bank Nifty consolidating

Nifty range-bound, to trade in broad range of 18400-18900, small-caps to outperform; Bank Nifty consolidating

By Dharmesh Shah

The equity benchmark snapped four weeks winning streak last Friday and concluded the week on a subdued note tracking muted global cues. The Nifty settled the previous week at 18665, down 160 points or 0.85%. The broader market performed in tandem with the benchmark as Nifty midcap, small cap lost 1%, each. Sectorally, NBFC relatively outshone while metal, oil & gas, consumption, realty underperformed.

Going ahead, we expect the Nifty to consolidate in the broader range of 18900-18400 that would make the market healthy and cool off overbought conditions after a 12% rally seen over the past thirteen weeks. Subsequently, a decisive close above 18900 would lead to acceleration of upward momentum towards 19300 in the month of July. Thus, buy on dips would be the prudent strategy to adopt as the strong support for the Nifty is placed at 18400 levels.

Amidst ongoing consolidation we expect Small caps to continue with its relative outperformance as Nifty Smallcap250 index has given a breakout from 20-month consolidation. Pattern implication suggests another 20-25% rally over the next 12–15 month period. Thus, any profit booking from higher levels should not be construed as negative instead it should be used to accumulate quality stocks

Sectorally, we expect BFSI, auto, IT, pharma to remain in focus. On stock front, in large caps, we prefer HDFC Bank, HCL Tech, Bharti Airtel, Bank of Baroda, Sun Pharma, Eicher Motors, Titan. In midcap shares, Ashok Leyland, Balkrishna Industries, Granules, Birlasoft, Kalyan Jewellers, Welspun Enterprises, Dhampur Sugar remain in focus.

Structurally, the index has maintained the higher high-low formation on the weekly chart despite elevated volatility, indicating elevated buying demand that makes us confident to retain support base at 18400 as it is confluence of:

since March, Nifty has not corrected more than 400 points. In current scenario 400 points correction will mature at 18486 61.8% retracement of current up move (18060-18886), at 1837650 days EMA is placed at 18360current month’s low of 18464Bank Nifty

The Bank Nifty index extended consolidation during the week and traded in a narrow range. The Bank Nifty closed at 43623, down 0.7% for the week. PSU banks underperformed their private banking peers. The Daily price action formed a Doji with lower high-low indicating extended consolidation within the downward slopping channel that encompasses corrective phase over past three weeks.

Index needs to witness follow through strength above higher band of channel at 44200 to indicate conclusion of corrective phase else extended consolidation in the 43300-44200 to continue. Bank Nifty has been forming a lower high-low on weekly charts for past three weeks indicating healthy consolidation after sharp 15% rally from March lows (38613).

From structural perspective, such corrective phase would make medium term trend healthier and would provide fresh investment opportunity with favourable risk-reward. The index has immediate support at 43400 levels being the confluence of the last two weeks identical lows and the rising 50-day EMA.

(Dharmesh Shah is the head Technical Analyst at ICICI Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)