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ICICI Securities

Published on 16/11/2019 12:28:33 PM

Bank Nifty: Current rally to extend towards 30800

Technical Outlook

* The index maintained positive bias and closed higher for a second consecutive month. We expect the Bank Nifty to trade with positive bias in the coming month and head towards 30800 levels as it is the confluence of the September 2019 high and 80% retracement of the entire decline (31783-26560)

* Bank Nifty on monthly scale formed an inside bar pattern signalling consolidation after 15% rally post corporate tax cut announcement. The index in the process formed a higher base (at 80% retracement of the previous rally (26643-30801)) highlighting positive price structure

* Sharp up move in the second half of the month saw the index registered a breakout above the last three weeks falling trendline signalling a resumption of primary up trend

* The current up move has seen broad based participation across PSU and private banking stocks signalling strength. Hence we do not foresee the index breaching the crucial support area of 28400-28600

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ICICI Securities

Published on 16/11/2019 12:28:09 PM

Nifty Midcap Index: Base formation post price/time wise correction maturity, offers favourable risk reward

Technical Outlook

* The strong base formation at key support threshold of 15200 (price/ time maturity), augurs well for Nifty Midcap index to resolve higher and witness 5% up move in coming months

* We believe the index has undergone a strong base formation after approaching price/time wise correction, as over past 21 months (21 is a key Fibonacci number) the index has retraced 61.8% of preceding 22 months rally (11190 – 21840), at 15260, indicating slower pace of retracement

* The aforementioned evidence signifies that base formation post slower pace of retracement offers fresh entry opportunity with favourable risk reward set up. Hence, we advise investors to accumulate quality midcap stocks amid Q2FY20 earning season

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ICICI Securities

Published on 16/11/2019 12:27:35 PM

Launch pad set to challenge life-time high of 12100

Technical Outlook

* Equity benchmarks maintained the rhythm of forming a higher low (as shown in chart) since elevated buying demand emerged from 61.8% retracement of sharp up move ~10% seen in the middle of September 2019. The ongoing structural improvement makes us believe the index is set to challenge the all-time high of 12100 in coming months o

* The index resolved out of downward sloping trend line (drawn adjoining subsequent high off all-time high of 12103), indicating termination of secondary corrective phase, auguring well for acceleration of upward momentum towards 12100 as it is:

  • price parity of sharp up move ~10% (seen post corporate tax cut) is placed around 12115
  •  All-time high placed at 12103

* Monthly stochastic oscillator recorded bullish crossover after bouncing form its key support area of 35, indicating positive bias

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ICICI Securities

Published on 16/11/2019 12:27:07 PM

Target of 11600 conquered, index eyeing life-time high of 12100

Technical Outlook

Equity benchmarks extended gains for a second consecutive month gaining 1%, buoyed by improved market sentiments aided by corporate tax rate cut. The Nifty behaved in line with our expectations as the initial dip led to a higher bottom formation around 11100 while the index achieved our intermediate target of 11600. Going ahead, we expect the index to resolve out of intermediate hurdle of 11700 and challenge the life-time high of 12100 in coming months. The ongoing healthy consolidation post a sharp up move of ~10% signifies a robust price structure, aiding the index to set the launch pad for acceleration of upward momentum towards 12100. In the process, we do not foresee the index breaching the key support threshold of 11300. Therefore, dips should be capitalised to accumulate quality stocks amid the Q2FY20 earning season. The midcap has formed a strong base on maturity of price/time wise correction, as over the past 21 month index retraced 61.8% of preceding 22 months rally. Slower pace of retracement signifies robust price structure auguring well for the index to rally 5% from here on and challenge the long term falling trend line at 17000. We recommend that investors buy quality midcap stocks as the broader market looks lucrative to participate in the impending technical pullback

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ICICI Securities

Published on 16/11/2019 10:20:54 AM

Bank Nifty: Ongoing trend remains intact till index holds 29000

* Similar to the Nifty, the banking index also saw a recovery. However, in relative terms, the Bank Nifty underperformed the Nifty index. The stagnant Bank Nifty/Nifty price ratio suggests that other sectors have also strongly participated in the current rally in the Nifty

* Looking at the options build-up, the Bank Nifty is likely to trade within the broader range of 31800-29000. We feel the key pivot for the series remains at 31000 for upsides to continue. On the Call side, however, additions were seen in 31000, which is also the second highest Call base for the series. We feel the upside in the index will continue with support now placed at 29000

* The Bank Nifty is starting the new series with significantly lower open interest with less than 0.8 million shares, which is the lowest Bank Nifty OI seen at the inception in the last eight years. The outperformance of the banking index can be attributed to sharp covering seen among banking heavyweights. The roll spread in the banking index also remained subdued and was seen around 100 points for most of the week

* The current price ratio of Bank Nifty/Nifty is near 2.53. We feel the ratio will consolidate near these levels while outperformance in banking stocks can be seen once the Bank Nifty closes above 31000

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ICICI Securities

Published on 16/11/2019 10:20:10 AM

Nifty likely to sustain above 12000..

Nifty recovery may continue till 12300

* Major Call build-up was seen at 12000 & 12300 strikes. In the first session of the November series, the data has evolved a little wherein 12000 Call on the higher side is becoming an immediate hurdle level with OI of over 18 lakh shares. A move above 12000 is likely to take the Nifty towards 12300

* The Nifty is starting the new series with almost 14.3 million shares, which is second lowest Nifty OI ever seen in last three years. Continued closure is seen among short positions in the last couple of weeks. The roll spread has also remained under pressure and has been unable move above 50 points due to lack of fresh long additions in the November series

* Midcap stocks have started getting inflows seeing the stability pattern in the index. FII inflows of more than ~| 14500 crore were seen in October

* We believe the Nifty’s current uptrend may go into some consolidation before crossing a life-time high of 12120 in the shortterm. However, it should continue to pick up as the series progresses. Though almost all sectoral indices are contributing to the rally, we feel outperformance would be seen in cement and metal stocks in coming weeks

 

Positional support for Nifty near 11500-11600

* On the lower side, 11600 Put has the maximum OI build-up (over 17 lakh shares), with OI build-up seen at 11500 Put strike as well. This suggests 11500/11600 would remain good support levels for the November series

* Among stocks, FMCG and IT are starting the new series with significantly high open interest. Short covering rally was seen in PSU banks, cement, auto and metal stocks suggesting the long bias seems to be continuing in coming weeks. However, at higher levels, profit booking can be seen in select private banks and consumption stocks in the November series

* We reiterate our bullish view on the Nifty suggesting continuing with “buy on dips” approach

* Stability of Indian equities will depend on the global set-up. The immediate catalyst for risk sentiment remains US-China trade talks and the geopolitical situation in the Middle East

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ICICI Securities

Published on 16/11/2019 10:19:32 AM

Nifty recovers 2.6 % in October series

Nifty witnesses follow-up buying in October series

* After an up move of over 7% in September, the Nifty recovered from the support level of 11200 in the October series with expiry happening with 2.6 % gain

* Stable US markets above 2950 (S&P) in the entire October series and a stable rupee also led the Nifty higher

* We saw positive FII inflows in both equity & debt markets in September. Inflows of nearly ~| 14500 crore in equity and ~| 5000 crore in debt were seen during the month

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ICICI Securities

Published on 16/11/2019 10:03:38 AM

Nifty consolidation to continue as option writers become active

The Nifty continued its consolidation within 11800-12000 amid more stock specific action. The quarterly result announcements have led to this move in stocks. With volatility closing at lower levels near 15%, it seems option writers have become active in the Nifty and range bound action is likely to be seen in coming weeks as well.

The highest Call base is still placed at 12000, which remains an immediate hurdle. The Nifty is consolidating before taking out this level. As per the data panning out, it may take more time for the index to consolidate.

Bank Nifty: Consolidation can be seen in coming week…

The Bank Nifty continued its outperformance from 28000 and moved towards its sizeable Call base of 31000 on the back of participation seen in most private bank leaders and SBI.

Highest OI additions for the week were seen in 30500 Put and 31500 Call along with a fall in IVs from 17.5% to 15%. OI additions in OTM strikes along with contracting IVs point towards option writing. We feel this will keep the index in a range while possible consolidation can be seen for a few days before following its upward trend.

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ICICI Securities

Published on 16/11/2019 10:02:08 AM

Equity benchmarks on expected lines witnessed breather as it traded in a range and closed almost flattish for a second consecutive week. Nifty closed the week at 11895 levels. Broader markets for a second week in a row consolidated in a range as the Nifty Midcap index closed marginally higher by 0.5% whereas the Nifty small cap index closed lower by 1% 

The weekly price action formed a high wave candle carrying a lower high-low, indicating extended breather amid stock specific action. We expect the index to continue with the current consolidation in the coming week in a range of 11700-12000 which will make markets healthy by cooling off the overbought situation of the weekly stochastic oscillator (currently at 87) formed after five week’s 940 points sharp rally.

We believe the current breather should not be suspected as negative but should be capitalised on as an incremental buying opportunity in quality cyclical stock as going ahead we do not foresee index to breach the key support threshold of 11700-11600.

Nifty has not corrected for more than two consecutive weeks since August 2019. In the current scenario, as the index has been correcting over the week, we expect temporary breather to find its feet around 11700-11600 levels as it is confluence of:

* as per the change of polarity concept, past three month’s resistance of 11700 would now act as immediate support  

* 38.2% retracement of current up move (11090–12034), at 11674.

Over the past eight sessions, Nifty Midcap index retraced 38.2% of preceding six session’s up move. Slower pace of retracement signifies healthy consolidation that aided daily stochastic oscillator to cool off the overbought situation (around 48). Going ahead, we expect Nifty midcap, small cap to relatively outperform benchmarks, as over past two months we have seen significant improvement in market breadth of Nifty 500 universe, as discussed below:

* during entire corrective phase off June high 12103 to August low of 10637, average number of stocks hitting new 52 week high was six per day, which has significantly improved to 17 per day in the past seven weeks, indicating rejuvenated buying demand  

*  percentage of stocks above 200 days SMA has improved (off September low 10670) from 28% to 50%

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ICICI Securities

Published on 11/11/2019 1:30:14 PM

Bank Nifty: More upsides can be seen once index manages to close above 31000…

* The Bank Nifty continued its upward journey for a fourth week in a row as buying continued in most private banks whereas a supportive move was also seen by PSU banks where SBI was the leader

* HDFC Bank, which consolidated for a long time, has started witnessing short covering whereas Kotak Mahindra Bank is also approaching its sizeable Call base of 1600. Apart from heavyweights, stocks like IndusInd Bank is witnessing short covering and is well placed to test 1500

* The Bank Nifty started the November series with a lower OI base. However, as the series progressed, the index has attracted huge OI positions along with appreciation in price indicating fresh long accumulation. The sizeable Call base is placed at 31000 strike. We feel that once the index manages to end above these levels, more upsides can be seen

* The current price ratio of Bank Nifty/Nifty has moved towards 2.58 levels on the back of outperformance in banking stocks. We feel the current leg of the rally in banking stocks will continue unless it remains above 30200

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