All sectors ended in the red, with metals falling the most by 4%. However, the IT sector was quite resilient after better-than-expected results by Infosys. Investors are also turning to defensive sectors such as FMCG which is witnessing demand revival along with increasing rural recovery.
Market participants remain cautious ahead of the upcoming Union Budget on July 23 next week which will provide further directions for the market. Earnings season will also pick up pace which could result in stock specific actions.
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 along with the index strategy for the coming week. Following is an edited excerpt from their chat:
The pharmaceuticals sector needs a major boost with more focus on R&D and innovation
Experts say the budget should address these critical challenges facing the government and the public sector
How Budget 2024 can narrow the skills gap through strategic investment in vocational training
The budget presents an opportunity to further Viksit Bharat’s product-led expansion
Sensex is at all time high. What are your views and thoughts on the movement of the index at this pace?
With the Sensex hitting all-time highs, our view suggests a cautious approach. Last week, the Sensex touched a new all-time high of 81,587 but failed to sustain that level on Friday, leading to profit booking. This resulted in the formation of a dark cloud cover candlestick pattern on the daily chart and a gravestone doji pattern on the weekly chart, indicating possible limited upside in the short term. Momentum indicators and oscillators are also supporting this cautious outlook.
Also, for the Nifty, this is the seventh consecutive week where the index has touched new highs. On Friday too, the index opened at 24,850 but fell below those levels, and even Infosys did not push it higher. Now, when do you see it touching the 25k mark?
For the seventh consecutive week, the benchmark index Nifty ended on a positive note. It set a fresh all-time high mark of 24,854 during the week. However, on Friday, it failed to sustain the high and saw profit booking of over 250 points. This resulted in the formation of a bearish engulfing candlestick pattern on a daily basis. A bearish engulfing is a bearish reversal candlestick pattern, which usually occurs at the end of an uptrend.
Additionally, on a weekly basis, it has formed a shooting star candlestick pattern, which also indicates profit booking at higher levels. Furthermore, the daily RSI has given a bearish crossover after touching the overbought zone. These technical formations clearly indicate limited upside in the short term.
Talking about Nifty’s levels, the 20-day EMA zone of 24,250-24,200 will act as strong support for the index. Any sustained move below the 24,200 level will lead to further profit booking in the index towards the 23,900 level in the short term. While on the upside, the zone of 24,850-24,900 will be a critical barrier for the index, we expect the index to trade in the range of 24,200 to 24,850.
Bank Nifty is in consolidation stage. And 2 banks are scheduled to report their Q1 earnings on Saturday. Kotak and HDFC are heavyweights. Given this, do you foresee any trades available on a technical basis.
Over the last 9-trading sessions, the banking benchmark index Bank Nifty has been oscillating in the range of 52,818-51,749 zone. During this phase, it strongly underperforms the frontline indicators and creates mostly inconclusive candles. The ratio chart of Bank Nifty is at a 39-day low compared to Bank Nifty, clearly indicating underperformance.
Due to consolidation, the Bollinger Bands have narrowed significantly on a daily basis. In technical parlance, it is known as Bollinger Band Squeeze. It occurs when volatility hits a low and the band narrows. A volatility contraction or band narrowing can foreshadow a significant advance or decline. Hence, we expect a trending move in the index in the next two trading sessions.
Talking about the levels, the zone of 51,900-51,800 will act as a strong support for the index. If the index slips below the level of 51,800, the next support is placed at the level of 51,200 while on the upside, the zone of 52,700-52,800 will be a crucial barrier for the index. Any sustained move above the 52,800 level will resume its northward journey. In that case, it is likely to test the level of 53,400 in the short term.
Generally, around the budget, there is a lot of focus on railways and defense stocks. But these stocks saw some profit booking ahead of the budget. Most of these stocks are trading in the red on Friday as well. Has the correction made these stocks more attractive and should one go buy the dip?
The main trend of railway and defense stocks is bullish as they show a sequence of high tops and high bottoms on the weekly scale. Also, they are trading above their short and long term moving averages. Momentum indicators and oscillators have seen a cool-off after touching overbought levels.
However, we recommend waiting until the budget to create new positions in these areas.
What other areas of focus could retail participants find opportunities with budgets due in the coming weeks?
From a technical perspective Nifty IT and Nifty FMCG sectors look strong. Given the potential volatility surrounding the budget, it is advisable to invest in these defensive sectors to mitigate significant losses.
With 2 events coming up next week, the budget as well as Nifty’s monthly close, do you think now is not a good time for traders to take fresh positions in the index, with all the volatility that could come in to play next week?
With the upcoming Budget next week and Nifty’s monthly closing, this may not be the right time for traders to take fresh positions in the index. Anticipated volatility can lead to unexpected market movements, making new trades risky. Further, the technical chart of the Nifty index suggests caution at the current levels.
(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)
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