The equity markets witnessed mixed trends through the previous week. The Nifty and Sensex stayed rangebound, and the range was also narrow.
According to Gaurav Bissa, vice president, InCred Capital,Nifty and Bank Nifty continued to witness rangebound move throughout the week. "Both the indices started the week on a positive note but failed to sustain the momentum. The indices however, managed to hold above their critical support area," he said.
"The latest ‘Doji’ formation on Nifty depicts the ongoing indecisiveness on its weekly scale. Its ongoing sequence of consecutive Inside Bar formations indicate a contracting range with bounds now placed at 18,160-17,860," said Sacchitanand Uttekar, Vice President, Tradebulls Securities.
In the last week, Indian Markets displayed resilience compared to global markets, gaining 0.4% while the S&P Index was seen ending lower by 0.66% for the week, said Sudeep Shah, head-technical and derivative research desk, SBI Securities.
Since the last four weeks, Nifty has been trading in a 2.5% choppy trading range with volatility contracting and no clear directional trend emerging ahead of the Budget set to be announced after 10 days (6 sessions remaining), he said.
Here are highlights of what the analysts have to say:
Gaurav Bissa, Vice President, InCred Capital
Nifty index has witnessed about 3.5% short covering in open interest, which pushed the index from 17,800 to 18,100, he said.
"The index had witnessed strong call writing at 18,000 strike, which ensured the index traded with weak bias. However, the call writers were forced to cover their positions and Nifty witnessed a swift move above 18,000. The index has thus proved the 17,775-17,800 zone as a strong support area on an immediate basis."
Bissa expects the Nifty to continue to trade in range with support at 17,775 and resistance at 18,255.
Bank Nifty also witnessed short covering in open interest to the tune of about 6%, which pushed the index from 41,800 to 42,500 zone. However, the index failed to cross its crucial hurdle of 42,700, which made the 43,000 strike call writers quite comfortable, he said.
The index was seen outperforming Nifty to come extent. He expects Bank Nifty to take strong support at 41,800 levels and a close above 42,700 can propel the index towards the 43,500 mark.
Among sectors, Nifty IT and Nifty PSE index witnessed most gains on expected lines. Mid-cap IT stocks like Coforge Ltd. and Persistent Systems Ltd. added fresh longs, which gave a strong push to stock prices, whereas Coal India Ltd. witnessed considerable short covering which pushed the stock price higher, he said.
Conversely, Nifty Media index was the biggest loser with stocks like PVR Ltd. and Zee Entertainment Enterprises Ltd. adding fresh shorts, Bissa said.
Nifty PSE as well as Nifty Service index will be on the radar as they are on the cusp of witnessing a breakout and breakout retest, respectively.
He advised to buy HAL for a target price of Rs 2,650 and maintain a stop loss at Rs 2,420.
Sacchitanand Uttekar, Vice President, Tradebulls Securities
The placement of its trend strength indicators complements the ongoing sideways consolidation. "On its daily scale, the index again slipped below its five and 20-days EMA, which is a sign of early weakness. A decisive close below the 18,020 level at the beginning of the week would push the index below the key weekly pivotal support of 17,860 as well."
Hence its ideal to retain short positions until a weekly close above 18,180 is not established and utilise intraweek pullbacks, if any, to add shorts until the index slips below 17,860 and eventually towards 17,550, he said.
Uttekar continues to adhere to short bias on rate sensitives with banks and NBFCs on top of his radar along with metals and auto, which continue to weaken further. FMCG, oil and gas, pharma and capital goods remain neutral to positive due to their internal stock rotations, he said.
Uttekar advises to sell Polycab India Ltd. at Rs 2,751 for a target of Rs 2,520 and maintain a stop loss at Rs 2,852. On its weekly scale, the stock has been displaying a strong negative divergence, he said. It has been facing supply pressure near the 2,800-2,900 zone, which also coincides as the upper end of the two-year long ‘broadening formation’.
The latest occurrence of a ‘Dark Cloud Cover’ formation on its daily scale scale reconfirms the weakness near this supply zone, he said.
Uttekar expects the stock to fall back towards its 200-days EMA level near the 2,500 zone. The reward-to-risk opportunity looks ideal for deployment of fresh shorts in anticipation of the bearish trend to unlock soon.
He advices investors to buy Jubilant Foods at Rs 511 for a target price of Rs 545, and maitain a stop loss at Rs 498. The stock registered a close above its five-weeks EMA after a consecutive decline of nine weeks, he said.
The reversal has formed a base near its 200 Weeks EMA itself re-confirming the support strength. The stock is expected to rebound towards its 20 WEMA level of 545, which can be participated with a stop loss below 498 on closing basis.
Sudeep Shah, Head-Technical and Derivative Research Desk, SBI Securities
"The 100 DMA zone of 17,950-17,930 on Nifty is likely to act as strong support for the index. Any sustainable move below the level of 17,910 will lead to further correction in index up to the level of 17,750," said Shah.
On the upside, the zone of 18,150-18,200 will act as strong resistance for the index, he said. Any sustainable move above the level of 18,200 will lead to sharp upside rally in index up to the level of 18,350.
"Looking at the Open Interest data, 18,100 call has significant open interest, followed by 18,200 strike. On the put side, 18,000 has significant open interest, followed by 17,800 strike—implying the zone of 17,930-17,950 will act as immediate support for the index and the level of 18,150-18,200 will act as immediate resistance for the index. Overall, for the next week, Nifty range could be 17,750-18,350, Shah said.
He advises traders and investors to adopt a stock-specific approach and look to add quality stocks, which are currently outperforming in the range-bound markets.
One should prefer quality large caps and high-quality mid caps while staying away from small caps, especially the debt-ridden ones in a rising interest rate scenario, Shah said.
Ahead of the Union Budget scheduled on Feb. 1, followed by Fed’s policy decision announcement on the same evening, global markets are expected to witness heightened volatility. Hence, traders are advised to take hedged bets with appropriate position sizing, keeping leverage in check, he said.
Shah expects selective stocks from the defence, oil and gas, capital goods and IT space to outperform, with positive trade set-up visible in select names such as Bharat Petroleum Corp. Ltd, Tech Mahindra Ltd., HCL Technologies Ltd., Gail (India) Ltd., L&T Ltd., Siemens Ltd., M&M Ltd., Hindustan Aeronautics Ltd., Bharat Electronics Ltd., HDFC Bank Ltd., and HDFC Ltd. while stocks from the pharma, real estate and consumption sectors could continue incremental weakness.