The week broadly witnessed a range bound movement for both the indices but the prices are comfortably placed above the 10 day EMAs on a weekly time frame. The 50 component Nifty index ended Friday with gains of 0.8% or 186 points at 24,502 while Bank Nifty closed flat with a gain of 0.02% or 8 points at 52,278.
Analyst Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities interacted with ET Markets regarding the outlook on Nifty and Bank Nifty along with an index strategy for the upcoming week. Following are the edited excerpts from his chat:
Indices are facing resistance at their ATH levels. Do you see a phase of consolidation post the rally? What is your view on Nifty & Bank Nifty?
In line with our expectations, Nifty IT has strongly outperformed frontline indices as it has surged by nearly 4%. On a weekly scale, it has given Cup and Handle pattern breakout. In the current week, the Nifty IT index has played a pivotal role in propelling the market’s upward trajectory. During the past couple of weeks, the continuous sector rotation is helping the market to sustain as well as move even higher. The benchmark index, Nifty, has ended on a positive note for the sixth consecutive week. Further, it has ended above 24,500 mark for the first time.
From a technical perspective, despite consolidation being witnessed in the last couple of trading sessions, the chart does not indicate any weakness. The Momentum indicators and oscillators suggest room for some more upside. Additionally, nearly 84% of Nifty constituents are trading above their 20-day EMA, indicating strong internal strength of the index.
However, with a major event such as the Union Budget just a week away, we suggest keeping a balanced risk-reward approach at current levels and following strict stop-loss strategies. Talking about level, the 10-day EMA zone of 24,250-24,200 will act as strong support for the index. As long as the index is trading above 24,200, it is likely to continue its upward journey and test the level of 24,700, followed by 24,900 in the short term. While, on the downside, if the index slips below the level of 24,200, then the next support is placed at the 23,950 level.
While, for Bank Nifty which has been consolidating too in the past few sessions, the zone of 51,800-51,700 will act as crucial support for the index as it is the confluence of 20-day EMA level and recent swing low. If the index slips below the level 51,,700, then the next support is placed in the zone of 51,300-51,200 level. While, on the upside, any sustainable move above the level of 52,600 will lead to resume its northward journey. In that case, it is likely to test the level of 53,000 in the short term.
How should a trader approach the Indices? Any trading strategy?
We suggest accumulating quality stocks at lower levels on minor dips in Nifty. Index option traders can attempt Bull Call Spread to capture the potential upside while limiting the losses incase of any corrective move on the downside.
What is the Open Interest positioning suggesting for Nifty as well as Bank Nifty?
Talking about Nifty, there is a notable concentration of call open interest at the 24,600 strike, followed by 24,700 strike. While significant open interest on the put side is observed at 24,400 strike, followed by 24300 strike. As per the Straddle cost of ATM strike, the range for the coming week will be 24,250-24,750 level.
Examining the Bank Nifty option chain, notable concentration of call open interest is at the 52,500 strike, while considerable open interest on the put side is observed at the 52,000 strike. As per the Straddle cost of ATM strike, the range for the next couple of trading sessions will be 52,800-51,750 level.
Shipbuilding companies and fertilizer stocks are quite in action ahead of the budget. What are your thoughts from a technical as well as long-term perspective?
Shipping stocks such as SCI, GE Shipping as well as Cochin Shipyard have shown excellent momentum in the past few weeks and could continue the up move in the coming week, too. However, from a risk reward perspective, fresh entry at current levels doesn’t look attractive & hence recommend to book partial profit in ship building stocks as they are in overbought zone on weekly scale and remaining quantity should hold with the stop loss of 10-day EMA level.
Aided by the seasonality factor, the selective fertilizer stocks such as RCF, NFL, Coromandel, and FACT are witnessing bullish momentum along with robust volume. Hence, we believe selective fertilizer stocks are likely to continue their upward journey.
Railway and defense stocks have also shown a lot of gains in the last 1-2 years, and the momentum still doesn’t seem to slow down. What do you think one should do – wait for a correction – or is it still ok to take fresh positions to ride an even bigger rally?
Those who are holding Railways and Defense stock we recommend to hold with the stop loss of 10-day EMA level of that respective stocks. The major trend of these stocks is bullish, with them marking the sequence of higher tops and higher bottoms and volume based buying being witnessed even at higher levels.
For the fresh entry, we will recommend waiting for a dip as risk reward is not favorable at current levels. We feel avoiding FOMO feeling will be very crucial in the coming few weeks, both from a trading as well as investing perspective.
With the upcoming budget, which other sectors could one focus on?
Technically, Nifty IT has given Cup and Handle breakout on a weekly scale. We believe it is likely to continue its upward journey in the next couple of weeks, especially post TCS quarterly results.
Nifty FMCG is also outperforming the frontline indices. It has also given consolidation breakout on a weekly scale.
Apart from this, Nifty Oil & Gas, Nifty PSE, Nifty CPSE, and Nifty Pharma are likely to continue their upward journey in the next couple of trading sessions
What are your views on SEBI’s working committee’s recommendation on raising the minimum lot size of derivative contracts from the current Rs 5 lakh to Rs 20 lakh-Rs 30 lakh and also on limiting weekly options to a single expiry per stock exchange each week?
These proposed measures are aimed at curbing the steep rise in derivative volumes and reducing the speculation driven by high retail participation, which has been witnessed post Covid. The weekly option expiries have had a major role to play in the phenomenal surge in option trading volumes. These proposed measures by SEBI, if implemented, will definitely have an impact on volumes. However, until the measures are announced officially, it would be prudent to avoid any speculation regarding the same.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)