Dharmesh Shah, Vice President, ICICI Securities has revealed his market outlook.
Equity benchmark extended gains over second consecutive week fueled by state election outcome that coupled with firm global cues. Nifty 50 gained 1% to settle the week at 24,131. Broader market remained outlier as Midcap, Smallcap gained 2.5% and 5%, respectively. The weekly price action resulted into small bear candle carrying higher high-low. The formation of lower shadow, indicates buying demand at elevated support base.
Going ahead, we expect Nifty 50 to form a higher base while holding the key support zone of 23,700-23,500, which would set the stage for challenging immediate hurdle of 24,500 and eventually head towards 25, 000 in the month of December. Hence, dips should be utilized to accumulate quality stocks in a staggered manner. Our constructive view is based on following observations:
a) Six weeks corrective phase in Bank Nifty got retraced back in just 2 weeks. Faster pace of retracement signifies structural improvement. Within the segment, PSU banks outperformed by gaining ~5%.
b) Past three decades historical data exhibit that December seasonality favour bulls with 73% success rate wherein average returns have been to the tune of 3%.
c) Significant improvement in market breadth data bodes well for extension of ongoing pullback as currently 36% stocks of Nifty 500 universe are trading above 50 days SMA compared to mid-Nov reading of 12%.
d) After facing stiff resistance from 108 levels US Dollar Index drifted below 106. Further decline would result into risk on sentiment in equities tracking its inverse correlation.
Sectorally, we remain positive on BFSI, IT, Pharma, Infra& Capital Goods while Oil & Gas, Metal offer bargain buy opportunity.
Structurally, since covid lows, average intermediate bull market corrections have been to the tune of 10% in Nifty and 9% in Bank Nifty. With 11% correction in Nifty 50 and 8% correction Bank Nifty is already in place, we expect index to maintain the same rhythm and stage a pullback in coming weeks while holding key support zone of 23,700-23,500 zone as it is confluence of:
a) 61.8% retracement of current rally (23,263-24,350), placed at 23,675
b) Long-term rising trend line that has been held over past 2 years
c) 200 days EMA is placed at 23,572
On the Bank Nifty front, the faster pace of retracement highlights structural improvement that makes us believe, index would form a higher base in the range of 51,500-52,000 zone and gradually head towards 53,500 in coming weeks as it is 80% retracement of past 2 months decline (54,467-49,787). The upward inching ratio chart of Bank Nifty/ Nifty 50 suggest continuation of relative outperformance going forward. Meanwhile, key support is placed at 50,400 as it is 80% retracement of current up move (49,787-52,760).
Stocks To Buy This Week – Dharmesh Shah
1. Buy Power Finance Corporation Ltd (PFC) in the range of ₹488-498 for the target of ₹562 with a stop loss of ₹459.
2. Buy Punjab National Bank (PNB) in the range of ₹102-105 for the target of ₹113 with a stop loss of ₹97.
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