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

On Friday, the domestic equities rallied for the second straight day, driven by positive global cues and a drop in U.S. jobless claims. The Nifty surged 375 points (+1.5%) to hit record highs, with most sectors, except PSU Banks, ending in the green.

Realty, metals, FMCG, private banks and financial services led gains. Analysts believe that strong FII inflows, healthy domestic macros, and easing concerns over the U.S. economy are expected to sustain the positive momentum.

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 post the Fed rate cut. Following are the edited excerpts from his chat:

How does a Fed rate cut of 50 bps typically affect equity markets? Does it affect in the long run or the impact is now done?

The Federal Reserve adopted an aggressive approach in its latest policy meeting, lowering 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 anticipated to follow suit. In the past 2 decades, the Fed had gone ahead with a 50-bps rate cut on 2 occasions in 2001 & 2007 when it was dealing with the economic crisis and the Nifty had thrived on both occasions. The equity markets have reacted positively, with major indices, including ours, reaching new all-time highs. Historically, rate-cut cycles are viewed as favourable for riskier assets, including emerging market equities, as they typically lead to increased foreign institutional investment (FII) inflows which also implies incremental momentum in large-caps over mid and smallcaps.

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

Driven by positive global sentiment, our benchmark index Nifty closed the week at a record high. The bullish momentum gained strength midweek, particularly on Wednesday night, after Federal Reserve Chairman Jerome Powell announced a 50-bps point interest rate cut for the first in four years. This decision boosted optimism in global markets, easing concerns about economic growth and increasing investor confidence.

Our view on the market stays bullish considering the current weekly and daily chart structure. At the same time, we would say it would be a stock-pickers market. Hence, don’t go too much by intraday action. Look at the bigger picture. And more importantly, follow the concept of Dow Theory which says that if an index or a stock is marking higher highs and higher lows, stay with it irrespective of any scary news flow. That’s because price action is the best testimony of a trend!

Talking about level, the Nifty is likely to test the level of 26100, followed by 26350 in the short-term. While, on the downside, the support zone has shifted higher in the zone of 25500-25450 in the short-term.

Ahead and post the rate cuts, bank Nifty has performed very well. Do you think now is the time to witness the index’s rally in the September series? And any levels?

The banking benchmark index, Bank Nifty stole the spotlight in the last week, outpacing the broader indices and hitting a fresh all-time high after July 2024. It closed at the 53800 level, posting an impressive 3.57 percent gain. Even more exciting, Bank Nifty gave a Cup pattern breakout on the weekly chart, a classic bullish signal, hinting at the potential for further upside in the coming sessions. The height of the Cup pattern is nearly 7 percent and the width of the pattern is 11-weeks. As per the measure rule of cup pattern, the upside target is placed at 57000 level in the medium-term. While, on the downside, the zone of 53000-52900 will act as immediate support for the index.

Which banks are you bullish on?

HDFCBANK: It has given a downward sloping trendline breakout on a daily scale. Thereafter it has started moving higher along with robust volume. We believe it is likely to continue its northward journey and test the level of 1800, followed by 1850 in the short-term.

ICICIBANK: It has given a Cup pattern breakout on a weekly scale. This breakout is confirmed by above 50-days average volume. The daily and weekly RSI is in a super bullish zone. Hence, we believe it is likely to continue its upward journey and test the level of 1370, followed by 1400 in the short-term.

Are there any rate-sensitive sectors that one could look out for?

Following the Fed’s policy announcement, expectations for a rate cut by the RBI have increased.

This could widely benefit Banks, insurance companies, NBFCs, and other financial companies that are sensitive to the cost of funds as they potentially gain greater lending power. Apart from the banking and financial space, we expect the Auto Sector to outperform in the coming few weeks.

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

Sectoral performance varies based on the spread and context of rate cuts. In Slow easing cycles, cyclical sectors outperform the defensive sectors while in Fast easing cycles, cyclical sectors tend to face challenges. This is due to the market participants interpreting aggressive cuts as indicators of deeper economic troubles.

Post the Fed rate cuts, while the bank nifty, nifty and sensex are enjoying all-time highs, mid caps saw profit booking. What is your view?

The Nifty Midcap 100 index has marked a low of 58352 on Thursday and thereafter it has witnessed a recovery on Friday. On a weekly scale, it has formed a small body candle with a long lower shadow, which indicates buying interest at a lower level.

We believe, if the index sustains above the level of 60500, then we may witness a sharp upside rally in midcap space also. In that case, the index is likely to test the level of 61500, followed by 62300 in the short-term.

We are now done with most of the key events and nothing seems to be disrupting our markets now. Do you foresee any triggers that will push or pull the key indices in the near term?

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

Metal stocks have performed very well in Friday’s session. What is your current outlook on the sector? Was this an intraday thing or this might continue for some time?

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

Any broader sectors 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 within those sectors?

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

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