F&O Talk| Nifty northward rally to continue in near term, sector rotation plays crucial role: Sudeep Shah of SBI Securities

Indian markets rose by 1.7% this week, marking a third consecutive weekly gain, driven by favorable global and domestic factors. The positive momentum was fueled by the US Federal Reserve’s rate cut and steady economic data, leading to increased foreign investments.

Additionally, China’s economic stimulus boosted global investor confidence, particularly in Asian markets. Metals and commodity stocks saw strong gains, while IT and export stocks rallied on hopes of a recovery in discretionary spending.

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 for the October expiry. Following are the edited excerpts from his chat:

Market making new highs daily, what is your outlook for the October series on Nifty?

The benchmark index Nifty has continued its northward journey for the third consecutive week. Most noteworthy, it has reached the psychological level of 26,000. What’s even more impressive is that the index marked a fresh all-time high in every single trading session this week, signaling extraordinary strength and a bullish charge that shows no signs of slowing down. Sector rotation has been a steady force, helping sustain these elevated levels over the past few months. In the last week, Nifty Auto, Nifty Metal and Nifty Oil & Gas have contributed the most in the rally.

Going ahead, the index is likely to continue its upward journey and test the level of 26,500, followed by 26,750 in the short-term. While, on the downside, the zone of 25,900-25,850 will act as immediate support for the index. If the index slips below the level of 25,850, then the next support is placed at the 20-day EMA level, which is currently placed at the 25,539 level.

Views and level for Bank Nifty now that it is in the blue skies?

Despite the sharp rally in the previous week, Bank Nifty underperformed compared to the frontline indices last week. The index traded within a narrow 725-point range, indicating a significant slowdown in bullish momentum over the past five sessions. On the weekly chart, it formed a Shooting Star-like candlestick pattern, signaling a limited upside in the near term. However, the broader trend remains bullish, as Bank Nifty continues to trade above its short- and long-term moving averages.

Going ahead, the zone of 53,500-53,400 will act as immediate support for the index. While, on the upside, the zone of 54,200-54,300 will act as a crucial hurdle for the index. Any sustainable move above the level of 54,300 will lead to a sharp upside rally in the index. In that case, the index is likely to test the level of 55,000, followed by 55,600 in the short-term.

What does the rollover data suggest for the monthly expiry?

The rollover for Nifty Index futures was higher at 78.77%, compared to the previous month’s 77.49% and the three-month average of 75.32%. Moreover, the rollover cost has surged to 0.31% as compared to the three-month average of 0.29%. This data indicates the market is likely to continue its northward journey in the next couple of trading sessions.

What kind of a view is the FII-DII activity painting in the current market?

In the latest series, the long-short ratio based on FII index positions is at 79.89 percent, which was highest in recent months. This indicates a strong bullish bias from foreign institutional investors.

While, on the cash front, the FII and DII were net buyers’ month till date. This clearly indicates that the both are holding a bullish view on the market.

Nifty auto and FMCG are at all-time highs, can one pick some good quality stocks here?

Last week, Nifty Auto gave a horizontal trendline breakout on a daily scale and thereafter it has witnessed strong bullish momentum. Most noteworthy, it has marked a fresh all-time high. The momentum indicators and oscillators are also portraying a bullish picture.

The Nifty FMCG is marking the sequence of gradual higher tops and higher bottoms. Also, it is trading above its short and long-term moving averages. These averages are in a rising trajectory and they are in the desired sequence, which suggests the trend is strong.

These technical factors are suggesting strong bullish momentum in both the Auto and FMCG space. Also, they have strongly outperformed the frontline indices since the last couple of trading sessions. Hence, we recommend looking for stocks specific opportunities in these sectors.

Given the upcoming festive season, how strongly are the jewellery and consumption themes likely to play out?

We anticipate that jewellery and consumption stocks are poised to perform well in the short term, driven by increased consumer demand and festive spending. Both sectors traditionally experience a boost during this period, which could translate into positive price momentum for selective stocks.

Post the Fed rate cut, the broader view now suggests to remain invested in the large caps than the mid or small caps? What thoughts do you have on this?

Technically, many large-cap stocks are displaying strong momentum, reinforcing the recommendation to remain invested in this segment. However, selective mid-cap stocks are also exhibiting bullish strength. If the Nifty Midcap 100 index surges above 61,000, we could see a significant rally in the mid-cap space as well.

At the same time, the small-cap segment should be approached with caution for now, as the Nifty Small Cap 100 index has been underperforming the major indices in recent weeks. The zone of 19600-19700 will be the crucial hurdle for the Nifty Small Cap index.

HDFC Bank is on the verge of a breakout above its all-time high. The street sure would be anticipating some consolidation before that happens. What are your views? And what levels do you foresee after the breakout?

The stock has given a Symmetrical Triangle breakout on September 12, 2024 and thereafter witnessed a sharp upside rally of over 8 percent in just 10 trading sessions. As a result, momentum indicators and oscillators have entered the overbought zone. The daily RSI reached a high of 82.07 before starting to cool off, while the daily stochastic also touched the overbought territory and gave a bearish crossover.

These technical signals suggest that the stock may enter a consolidation phase before embarking on another upward leg of the rally. Talking about levels, the zone of Rs 1,780-1,800 will act as an immediate hurdle for the stock. Any sustainable move above the level of Rs 1,800 will lead to sharp upside rally in the stock.

Comments on Trent and BEL, given their inclusion in Nifty.

Trent is in a strong uptrend, consistently forming higher tops and higher bottoms. However, momentum indicators and oscillators are signalling caution. The daily, weekly, and monthly RSI are all in the extreme overbought zone, with the monthly RSI at a lofty 97.53. Given these technical conditions, we anticipate that the stock is likely to enter a consolidation phase after its inclusion in the Nifty index.

BEL has marked a high of Rs 340.50 in the month of July 2024 and thereafter started marking the sequence of lower tops and lower bottoms. Recently, it has shaped an Adam and Adam Double Bottom pattern on the daily chart. The stock is currently hovering around the neckline of this pattern. Any sustainable move above the level of Rs 300 will lead to sharp upside rally upto the level of Rs 325, followed by Rs 340 level.

Outside of BEL, how are PSU defence stocks expected to perform? There was a sharp rally in them in the recent past but seems to have faded a bit. What are your views?

For now, we recommend avoiding PSU defence stocks, as their short- to medium-term trend appears bearish. The recent momentum has tapered off, and technical indicators suggest that the sector may remain under pressure for the time being.

Given the optimism in the energy sector, and the recent rally in Reliance Power too, is it a good play for trading or investing?

We will recommend avoiding Reliance Power for now.

Any picks from a technical perspective for the traders?

POLYCAB: The stock has given a horizontal trendline breakout on a daily scale. This breakout is confirmed by the above 50-day average volume. Additionally, it formed a sizable bullish candle on the breakout day, further reinforcing the breakout. The momentum indicators and oscillators also suggest strong bullish momentum in the stock. Hence, we recommend accumulating the stock in the zone of Rs 7,060-7,030 level with a stop loss of Rs 6,800 on the upside. It is likely to test the level of Rs 7,400 followed by the Rs 7,600 level in the short-term.

EXIDEIND: The stock formed a Shooting Star candlestick pattern on June 25, 2024, and thereafter witnessed a correction along with the low volume. During the period of correction, the stock has taken support near the 50 percent Fibonacci retracement level of its prior upward rally (Rs 290- Rs 620) and resumed its northward journey. The reversal from the support zone is confirmed by robust volume. Hence, we recommend accumulating the stock in the zone of Rs 498-494 level with a stop loss of Rs 481 on the upside. It is likely to test the level of Rs 520 followed by Rs 535 level 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)