F&O Talk | Bank Nifty may eye 57,000 mark in medium term, overall market outlook bullish: Sudeep Shah of SBI Securities

On Friday, positive global signs and a drop in US jobless claims led domestic equities to rally for a second straight day. The Nifty rose 375 points (+1.5%) to hit a record high, with most sectors ending in the green except for PSU banks.

Realty, metals, FMCG, private banks and financial services rose. Analysts believe that strong FII inflows, healthy domestic macro and easing concerns on the US economy are expected to maintain the positive momentum.

SBI Securities Deputy Vice President and Head of Technical and Derivatives Research Analyst Sudeep Shah spoke to ET Markets about the outlook on Nifty and Bank Nifty post the Fed rate cut. Following is an edited excerpt from their chat:

How does a Fed rate cut of 50 bps affect equity markets in general? Does it have a long-term effect or is the effect now?

The Federal Reserve took an aggressive approach at its latest policy meeting, cutting interest rates by 0.5% to a range of 4.75-5%. This marks the first rate cut since March 2020. As a result, central banks globally are expected to follow the forecast. In the past 2 decades, the Fed has gone ahead with 50-bps rate cuts on 2 occasions in 2001 and 2007 when it was facing a financial crisis and the Nifty rallied on both occasions. Equity markets have responded positively, with major indices including ours hitting new all-time highs. Historically, rate-cut cycles have been considered favorable for riskier assets, including emerging market equities, as they generally increase foreign institutional investment (FII) inflows that tend to favor growth in large-caps rather than mid- and small-caps. Indicates motion.

With Nifty at a new all-time high on Friday, what are the next levels to watch out for?

Buoyed by positive global sentiment, our benchmark index Nifty closed at a record high for the week. Bullish momentum strengthened mid-week, particularly on Wednesday night, after Federal Reserve Chairman Jerome Powell announced a 50-bps point interest rate cut for the first time in four years. The decision boosted optimism in global markets, eased concerns about economic growth and boosted investor confidence.

Our outlook on the market remains bullish given the current weekly and daily chart structure. At the same time, we would say it will be a stock-pickers market. So, don’t get too carried away by intraday action. See the big picture. And more importantly, follow the concept of Dow Theory which says that if an index or stock marks higher highs and higher lows, stick with it regardless of any scary news flow. That’s because price action is the best indicator of trend!

Talking about levels, Nifty is likely to test 26100 levels in short term and 26350 thereafter. Whereas, on the downside, the support zone has shifted higher to the zone of 25500-25450 in the short term.

Before and after the rate cut, Bank Nifty has performed very well. Do you think now is the time to see the index rally in the September range? And any level?

The banking benchmark index, Bank Nifty, stole the spotlight last week, outperforming the broader indices and hitting a fresh all-time high since July 2024. It closed at 53800 with an impressive gain of 3.57 percent. Even more exciting, the Bank Nifty gave a cup pattern breakout on the weekly chart, which is an excellent bullish signal, indicating the possibility of further upside in the coming sessions. The height of the cup pattern is about 7 percent and the width of the pattern is 11-weeks.

As per the measuring rule of cup pattern, upside target is kept at 57000 level in medium term. Whereas, on the downside, the zone of 53000-52900 will act as an immediate support for the index.

Which banks are you bullish on?

HDFCBANK: It has given downward sloping trendline breakout on daily basis. Since then it has started moving higher with strong volume. We believe it is likely to continue its northward journey and test the 1800 level, followed by 1850 in the short term.

ICICIBANK: It has given cup pattern breakout on weekly basis. This breakout confirms volume above the 50-day moving average. Daily and weekly RSI are in super bullish zone. Hence, we believe it is likely to continue its upward journey and test 1370, followed by 1400 levels in the short term.

Are there any rate-sensitive areas that one might watch out for?

Expectations of a rate cut by the RBI have risen after the Fed’s policy announcement.

This can benefit banks, insurance companies, NBFCs and other financial companies that are sensitive to cost of funds as they potentially gain more lending power. Apart from the banking and financial space, we expect the auto sector to outperform in the next few weeks.

Do you see any historical correlation between big Fed rate cuts and sector performance in the stock market?

Sectoral performance varies depending on the spread and context of rate cuts. In slow easing cycles, cyclical sectors outperform defensive sectors while in fast easing cycles, cyclical sectors face challenges. This is due to market participants interpreting the aggressive cuts as indicative of deeper economic woes.

Post the Fed rate cut, while Bank Nifty, Nifty and Sensex are enjoying all-time highs, mid-caps saw profit booking. What is your opinion?

The Nifty Midcap 100 index marked a low of 58352 on Thursday and then recovered on Friday. On a weekly basis, it has formed a small body candle with a long lower shadow, indicating buying interest at lower levels.

We believe that, if the index sustains above the 60500 level, we may see a sharp upside in the midcap space as well. In that case, the index is likely to test 62300 then 61500 level in short term.

We have now completed most of the major events and nothing is disrupting our markets now. Do you foresee any triggers that will push or pull the major indices in the near term?

Currently, the main event on the horizon is the 2024 US presidential election, which is scheduled for November 5, 2024. In addition to this important political event, geopolitical tensions in West Asia could potentially disrupt global crude and gas markets, which could result in short-term volatility. Volatility in equity markets.

Metal stocks have performed very well in the Friday session. What is your current view on this field? Was this an intra-day thing or could this continue for a while?

We believe it is just a day thing as the Nifty Metal Index is still consolidating in the range. The zone of 9500-9550 will act as an immediate barrier for the index. If it sustains above the 9550 level, we can see a sharp upside rally to the 9800 level followed by the 10,000 level in the short term.

Are there any broad areas to watch out for?

Technically, Nifty Bank, Nifty Financial Services, Nifty Auto and Nifty FMCG are likely to outperform in the short term.

Any stock recommendations in those areas?

ICICI Bank, HDFC Bank, Escorts, M&M, Eicher Motor, Maruti, Nestle and Havells are likely to outperform in the short term.

(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)