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In June 2023, the Nifty had put up an 87-week Cup pattern breakout with a sharp rally. As per the measure rule of the Cup pattern, “upside target for the Nifty 50 is placed at the 22,613 level, while, on the downside, the zone of 20,200-20,100 will be a crucial support for the index”, Sudeep Shah, deputy vice-president and head of technical and derivative research desk at SBI Securities, says in an interview to Moneycontrol.
Shah looks bullish on the PSU Bank Index. He believes it would continue with its outperformance into 2024 and support Bank Nifty on the upside.
The Bank Nifty is likely to sustain its upward momentum, potentially reaching 50,000 and even 52,000 in the medium term. “On the downside, the range of 45,000-44,700 holds crucial support for the long-term trend,” says Shah, backed by his over 15 years spent in technical and derivatives research.
Excerpts from the what Shah shared about his views on the market from a technical perspective.
Do you think the upward journey in the Nifty 50 will continue in the coming weeks, despite recent corrections seen in the middle of last week? Is it a part of consolidation after a stellar run?
History has consistently shown that bull markets aren’t a straight upward trajectory; they often encounter sharp pullbacks. With the approaching Q3FY24 results season and the general elections, some volatility is expected in the market. Nonetheless, we maintain a bullish stance, given the favourable macro factors for risk-on asset classes in 2024.
Despite the rapid ascent, the Nifty has only risen by 14.7 percent since October 2021, and key stocks like Reliance, Infosys, and HDFC Bank have recently joined the upward trend.
In June 2023, the Nifty gave an 87-week Cup pattern breakout and a sharp rally. As per the measure rule of Cup pattern, the upside target is placed at the 22,613 levels, while on the downside, the zone of 20,200-20,100 will be of crucial support for the index.
Also read: Stockology: Will markets see trend-reversal in last trading week of the year?
Do you expect the Bank Nifty to consolidate in the range of 47,000-48,000 in the coming days and 50,000 to be possible in January only?
To reach the psychological milestone of 50,000 from its current position, the Bank Nifty would require a 5.2 percent return. Analysing the seasonality data, Bank Nifty has surpassed a 5 percent return threshold four times in January over the last 10 years, indicating the feasibility of achieving this target. The recent positive momentum in HDFC Bank and Kotak Mahindra Bank, carrying a combined weightage of 39.44 percent, could serve as catalysts driving the Index closer to this goal.
Assessing the chart structure of Bank Nifty, it exhibits a bullish trend, consistently forming higher highs and higher lows on a weekly scale. Additionally, it remains above both short and long-term moving averages. Since July 2022, the index has been following an upward trajectory within a rising channel. From a technical perspective, it’s poised to sustain its upward movement, potentially reaching 50,000 and even 52,000 in the medium term. On the downside, the range of 45,000-44,700 holds crucial support for the long-term trend.
Also read: Darlings of Dalal Street: The stocks most owned by mutual funds
We also feel the PSU Bank Index could continue its outperformance going into 2024 and could support Bank Nifty on the upside.
Do you think the Nifty FMCG is in the beginning of an upward journey and is likely to see 60,000 mark in the coming weeks?
Since June 2022, the Nifty FMCG has been on a robust upward trajectory, consistently trading above its 20 EMA (exponential moving average) on the weekly scale. This sector has outperformed the broader Nifty, boasting a 52 percent return, compared to the Nifty’s 39 percent, showcasing remarkable strength. This ascent is predominantly fuelled by ITC, which holds a significant 30 percent weightage; its performance will wield substantial influence over the sector’s future path.
We maintain a positive outlook for the sector as the Index shows a consistent pattern of higher highs and higher lows. Recently, it has given a 21-week rectangle pattern breakout on the weekly scale. On the upside, it is likely to test the level of 58,100 in the short-term as per the measure rule of rectangle pattern.
Will the run-up seen in Nifty Midcap 100 and Smallcap 100 continue in 2024 as well, despite intermittent breaks and consolidation?
We anticipate a potential consolidation phase ahead for the Nifty Midcap 100 and Smallcap 100, following their impressive rally since March 2023. The spotlight might now turn towards larger-cap stocks in the initial half of 2024, particularly until the volatility surrounding the general elections subsides.
The strategy should be to selectively pick individual quality midcap and smallcap stocks as might be a cooling off from an index viewpoint. Both indices are presently in an overbought zone, as indicated by the RSI (relative strength index) indicator on the weekly timeframe.
One should keep an eye on midcaps from the Cement, Engineering / Capital Goods, Infra, Railways, Defence, Renewable and IT space.
An unstoppable run in the Nifty IT next year after several quarters of consolidation?
With the favourable shift in the interest rate scenario in the US markets on account of Fed’s Dovish stance due to the cool-off in the Inflationary reading, attention is likely to return to Indian IT stocks that experienced an extended phase of sideways consolidation. Nifty IT reached a high of 39,447 in January 2022 and then underwent a sharp correction, plummeting by almost 34 percent in just 27 weeks.
Following this, it went through a consolidation period lasting 77 weeks. Nifty IT has broken out of a Cup pattern (stage-2). We foresee the upward trend continuing into 2024, with the index potentially rallying up to 37,000, and subsequently aiming for the 39,000 levels.
Within the overall IT space, we feel there could be outperformance witnessed in quality midcap companies such as Cyient, LTIMindtree, Persistent Systems, Mphasis, L&T Technology Services and Oracle Financial.
Will the year 2024 be a great year for the Metal index?
With dovish commentary coming from the Fed on account of the cool-off in the overall inflation trend, the Street is expecting three rate cuts to the tune of 75bps in 2024.
The indications are very clear with the trajectory of US 10-year bond yields, which have cooled off from 5 percent to 3.9 percent, indicating a shift of funds from the safe haven assets such as bonds to the riskier assets like emerging markets (including India) and the commodities.
Also, the metal counters typically show an inverse correlation with the Dollar index. Technically, the metal index has broken long-term resistance on the weekly and monthly charts in December 2023 above 7,100 after 20 months of consolidation and is presently at its all-time highs. The multi-year breakout, along with the chart pattern, suggests that the index has the potential to reach levels around 8,850 with supports placed at 7,100 zone.
We expect 2024 to be a favourable year for the metal names from the Large-cap, Midcap as well as PSU space.
Considering the market outlook for 2024, what should be the strategy to play the trend?
There’s a widespread anticipation of central banks globally reducing interest rates, likely prompting increased fund inflows into equity markets. We’ve witnessed this trend since November 2023, with robust buying activity from foreign institutional investors (FIIs). At this point, we suggest focusing on prominent large-cap stocks within the banking, IT, and metal sectors.
Your top three picks (with rationale) for next year, after reading the long-term charts?
Banco Products: This key stock from the auto ancillary space experienced a notable surge after breaking out from a sideways consolidation in April 2023. It’s been consistently forming higher highs and higher lows, presently trading above both short-term and long-term moving averages on the weekly chart. After reaching a peak of Rs 617, it underwent four weeks of sideways movement before breaking out to new all-time highs this week. The weekly RSI has surged to 74, indicating a bullish trajectory. These technical indicators point towards further bullish momentum in the stock. Looking ahead, it’s likely to test levels around Rs 738 and Rs 772 in the medium term while finding crucial support between 510 and 490 on the downside.
Tata Motors: The stock reached a peak of Rs 536 in November 2021, followed by a pullback phase. Notably, during this pullback, the trading volumes remained mostly below average, suggesting a routine decline after a sharp upward rally. During this pullback phase, the stock has found support around the 100-week EMA (375).
It has established a strong base near this support zone and resumed its upward trajectory in May 2023. Since this breakout, it has been on a robust uptrend, consistently forming higher highs and higher lows, and maintaining above its 20 EMA on the weekly timeframe, indicating a strong trend.
In June, the stock has given breakout of horizontal trendline resistance (Rs 600). The trendline was formed by connecting swing highs since 2015. These technical factors suggest a continuation of bullish momentum in the stock. Looking ahead, it’s likely to target levels around Rs 880 and subsequently Rs 960 in the long term, while finding crucial support around Rs 580 zone on the downside.
Cummins India: The stock has experienced a notable upward surge in recent months, maintaining consistently bullish momentum. Investors are actively buying into major dips, a trend corroborated by the stock’s delivery volumes. It’s trading above both short-term and long-term moving averages and has remained above its 50 EMA since November 2020. After reaching a peak of Rs 1,980, it underwent a thirteen-week consolidation phase before regaining upward momentum. Considering these factors, the stock is poised for potential outperformance in the coming months. It’s likely to test levels around Rs 2,156 and potentially reach Rs 2,460 in the medium term. In case of an immediate decline, the zone between Rs 1,820 and Rs 1,690 is expected to act as a support level.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Disclaimer: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
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Chartist Talks | PSU Bank may continue to outperform in 2024, support rise in Bank Nifty – Moneycontrol
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