Reliance Industries, SBI, TCS, ITC among top stock picks; Nifty unlikely to break 17200 support

By Dharmesh Shah

Equity benchmarks started the previous week on a subdued note tracking muted global cues. The Nifty ended the week at 17475, down 1.7%. Broader markets indices performed in tandem with the benchmark as Nifty midcap and small-cap lost 1% each. Sectorally, all major indices took a breather weighed by metal, auto, realty.

Technical Outlook

• The index extended breather and approached the lower band of consolidation placed at 17400 ahead of earning season. The weekly price action formed a bear candle carrying lower high-low, indicating prolonged consolidation amid stock-specific action
• The index has undergone healthy retracement over the past seven sessions and is currently poised at the lower band of consolidation placed at 17400. Thereby offering fresh entry opportunities with favourable risk-reward. In the coming week we expect, a prolongation of ongoing consolidation with a positive bias in the broader range of 17800-17200 amid stock specific action. Our positive view on the market is further corroborated with following observation:

1. The index is undergoing slower pace of retracement, as over past seven sessions it retraced less than 61.8% of preceding six sessions up move (17004-18115). The slower pace of retracement signifies inherent strength
2. The index is approaching key support of 50 days EMA. In a bull market mean reversion towards 50 days EMA signifies healthy correction that augurs well for next leg of up move
3.  Past seven sessions corrective phase hauled daily stochastic in oversold territory, indicating impending pullback in coming sessions 

• Structurally, the formation of higher peak and trough on the monthly chart indicates broader structure is intact. Thus dips should be capitalised to accumulate quality stocks as we do not expect index to breach the key support threshold of 17200 as it is confluence of:

1. 61.8% retracement of entire up move off March low (15671-18114), placed at 17181 
2. 50 days EMA is placed at 17300

• Sectorally, BFSI, Metal, Unlock themes are expected to do well along with stock specific performances by IT, Capital goods
• Our preferred large cap stocks are State bank of India, Axis Bank, TCS, Adani Ports, Reliance Industries, ITC, JSW Steel while in midcap space we like ABB, Bharat electronics, Cochin Shiypard, Thermax, Praj Industries, Voltas, Indian Hotels, Rallis, Redington
• The broader market indices have taken a breather after five weeks rally. We believe, temporary breather from hereon would make broader market healthy by cooling off overbought conditions. Hence, focus should be on accumulating quality stocks on dip 

Bank Nifty Outlook:

• The Bank Nifty traded in a range and closed the truncated week marginally lower amid volatile global cues. The weekly price action formed a second consecutive high wave candle signaling consolidation for the last two weeks after a sharp rally of more than 3500 points in the preceding six sessions
• In the smaller time frame the index has already taken seven sessions to retrace just 38.2% of the preceding six sessions up move (35016-38765). A shallow retracement signals a higher base formation and an overall positive price structure
• We expect the index to prolong the ongoing consolidation with positive bias while holding above the support area of 37100-36700 and gradually head towards the recent high of 38500 in the coming weeks 
• We believe the currently extended breather should not be seen as negative instead dips should be used as buying opportunities as we do not expect the index to breach the support area of 37100-36700 being the confluence of the following observations:

1. The bullish gap up area of 4^th April 2022 is placed at 37100 
2. The recent breakout area above last two week’s high is also placed around 36700 levels
3. The 50% retracement of the preceding up move (35017-38765) is placed at 36800 levels 

• Among the oscillators, the weekly 14 periods RSI has recently generated a buy signal moving above its nine periods average thus validating the overall positive bias in the index.

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

Disclaimer:
ICICI Securities Limited is a SEBI registered Research Analyst having registration no. INH000000990. It is confirmed that the Research Analyst or his relatives or I-Sec do not have actual/beneficial ownership of 1% or more securities of the subject company, at the end of 13/04/2022 or have no other financial interest and do not have any material conflict of interest. I-Sec or its associates might have received any compensation towards merchant banking/ broking services from the subject companies mentioned as clients in preceding 12 months.