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Nifty : 25327

Technical Outlook

Week that was…

Equity benchmark endured its winning streak over third consecutive week underpinned by strong global cues tracking Fed rate cut. Nifty settled the week at 25327, up ~1%. Broader market outperformed as Midcap gained 1.5% while small cap rose 2.8%. Sectorally, PSU Banks, Realty, Defence remained in limelight.

Technical Outlook:

* Nifty started the week on a flat note, and rebounded making higher-low formation. Subsequently, profit booking seen in the vicinity of 1-year falling trendline. The weekly price action formed a bull candle carrying higher highlow, indicating continuation of the upward momentum as the breakout from contracting triangle helped index to approach near our target of 25500.

* Nifty is likely to open on a negative note amid Trump’s announcement on H1B visa fee hike. Going ahead, we reiterate our positive stance and expect Nifty to head towards 25800 in upcoming month. The across sector participation on the back of GST reforms helped to improve market breadth while maintaining higher peak and trough intact, highlighting inherent strength.

* Over past three weeks index has rallied >1000 points without any breather. Thereby, possibility of temporary breather at higher level cannot be ruled out which will make market healthy and pave the way towards 25800 in coming weeks wherein strong support is placed at 24700. After announcement of growth friendly GST reforms, now all eyes are on the progression of tariff negations. Any announcement on scrapping of additional 25% tariff or lowering reciprocal tariff rates would fuel further momentum in the market. Consequently, focus will shift towards export-oriented Textile, Capital Goods and Pharma stocks.

* Mirroring the Dow Jones move, Russell index (US Small cap index) clocked a fresh All Time High after 2021, indicating broadening of global rally. On the domestic broader market front, in a bull market scenario, average decline in Midcap and Small cap indices have been 27% and 29%, respectively. Buying in such scenario has been fruitful with >50% returns in subsequent 9-12 months.

* In the month of April, after 23% and 27% correction in Midcap and small cap, indices witnessed a sharp rebound and made a higher base in the vicinity of 52-week EMA. Currently, Midcap index is shying away 3% from its All Time High while small cap index is 6% away from All Time High. Hence, focus should be on accumulating quality stocks on dip.

* Our positive stance is further validated by following observations:

* a) Index heavy weight: Revived traction in BFSI, IT, Auto (cumulative >50% weightage) would drive Nifty higher.

* b) Sentiment indicator at lows: Historically, rare occurrence of India Vix closing below 11 has eventually garnered double digit returns in subsequent 12 months.

* c) Market breadth: Constant improvement in market breadth highlights inherent strength. Currently, 65% stocks are trading above 50 days SMA while 70% stocks are trading above 200 days SMA compared to one month back reading of 41% and 58%, respectively.

Nifty Bank : 55459

Technical Outlook

Week that was:

* Bank Nifty logs third straight weekly gain on upbeat global cues post U.S. Fed rate cut and settled at 55,460 up 1.15%. Nifty PSU Bank index has outperformed the benchmark, ending the week at 7,395 up 4.80%.

Technical Outlook:

* Bank nifty started the week on a positive note, and rebounded from the previous week’s high making higher-high-low formation. Consequently, the weekly price action formed a strong bull candle with minor upper shadow, indicating breather.

* Key point to highlight is that over the past three weeks index has rallied approximately 4.50% without any breather, thereby possibility of temporary breather at higher level cannot be ruled out. After favorable GST reforms now, all eyes are on the progression of tariff negations, any positive outcome could act as a trigger, driving the index towards our ear market target of 56800 being 80% retracement of the preceding decline (57628- 53578).

* On the momentum front, weekly stochastic oscillator has maintained its bullish crossover, with reading of 48, reflecting continuation of current upward momentum. Hence, with the above improvement in index we revise our support to 54700 being 50% retracement of the current up move (53,561-55835) and any decline from current level should be viewed as a buying opportunity.

* Structurally, Since Dec-22 the intermediate correction within channelized move has been arrested within 10%. While buying near 52 weeks EMA has been fruitful over next 8 months. With current 7% correction Bank Nifty witnessed elevated buying demand in the vicinity of 52 weeks EMA, indicating formation of a strong base and setting the stage for resumption of the uptrend.

* PSU Bank Index has relatively outperformed the benchmark and closed on a positive note. Index has decisively broken out from the cup & handle pattern in weekly chart, indicating the resumption of an uptrend and opening the door for the further upside towards its measured move target at 7690. However, immediate support is placed near 6999 being 50-day EMA.

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