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Nifty : 22302

Technical Outlook

Day that was…

Equity benchmark concluded volatile session on a flat note as Nifty closed tad at Tuesday’s close of 22302. The market breadth turned positive with A/D ratio of 1.4:1 as broader market relatively outperformed the benchmark. Sectorally, Auto, metal, Oil & Gas outshone while financials took a breather

Technical Outlook

* The index staged a strong rebound after initial dip and settled the volatile session on a flat note. As a result, daily price action formed a bull candle with shadows on either side, indicating pause in downward momentum as supportive efforts emerged from 50 days EMA coincided with 61.8% retracement of mid April Rally (21778-22794)

* Going ahead, a decisive close above previous session’s high would confirm the conclusion of corrective phase and open the door for next leg of up move towards 22800 mark. Eventually, we expect index to surpass the 22800 mark and accelerate move towards our earmarked target of 23400 by June. In the process, bouts of volatility ahead of general election phase can not be ruled out amidst progression of Q4 earning season

* Key point to highlight is that the India VIX (which gauge the fear in the market) has recorded 52 weeks high of 18.32, indicating rise in volatility. Historically, India VIX has a tendency to rise ahead of Election and eventually it fizzles out post election outcome. During MAY 2019, rise in VIX resulted into decline in index that in turn helped Nifty to form a higher base and set the stage for next leg of up move. Thus, ongoing corrective decline should not be considered as negative instead capiatalise it as buying opportunity in quality stocks. Our constructive bias is validated by following observations:

* A) Since Feb-24 low, Bank Nifty has been witnessing peculiar pattern wherein after 5% correction it subsequently rallies 7% and record new highs. In current scenario, with 4.25% correction already in place we expect Bank Nifty to maintain the same rhythm and relatively outperform the Nifty

* B) Contrary to adage of sell in May and go away, Indian equities have delivered positive returns in May month during General election years in four out of past five instances since CY1999. Minimum returns were 1.5% while average was 14%

* C) Brent prices have given breakdown from five month rising channel indicating that upsides are capped around $92. Further declines towards 75-78 likely in coming month

* Formation of higher peak and trough makes us confident to retain support base at 22000 is based on confluence of:

* a) 80% retracement of recent up move 21778-22794

* b) Rising trend line drawn adjoining rising trend line drawn adjoining Dec-23 to Jan 24 lows

Nifty Bank: 48021

Technical Outlook

Day that was :

The Nifty Bank index continued with its corrective move over sixth session in a row and concluded Wednesday’s session at 48021 . Defying the benchmark trend PSU banks staged a rebound after three sessions decline and gained 0 . 9 % for the session

Technical Outlook

* The Bank Nifty started the session on a negative note . However, supportive efforts around 50 days EMA helped index to recoup some of intraday losses . Consequently, daily price action formed a small bear candle carrying lower high -low, indicating corrective bias amid oversold conditions as daily stochastics ease towards reading of 16 . For index to indicate pause in downward trend, it has to sustain above preceding session high

* Structurally, current decline from life highs is a healthy retracement and we maintain our structural positive stance on index . Recent high and psychological mark of 50000 remains immediate target for Nifty bank index . Meanwhile index is expected to relatively outperform

* Since Feb -24 low, Bank Nifty has been witnessing peculiar pattern wherein after 5 % correction it subsequently rallies 7 % and record new highs . In current scenario, with 4 .25 % correction already in place we expect Bank Nifty to maintain the same rhythm and relatively outperform the Nifty . We expect it to undergo higher base above 48000 levels which will set stage for next up move . Use buy on decline strategy with focus on corporate that are expected to do well

* Key observation has been that Bank Nifty/Nifty relative performance ratio chart indicates strong outperformance from Bank Nifty over next 3 - 4 months . Since 2008 , in all six instances, whenever relative ratio line turned up from cycle low, Bank Nifty outperformed by 5 % over three -four months period

* We revise key immediate support for Index at 48000 as it is confluence of :

* Last Fridays low

* Value of rising 20 -day ema at 48238

* 50 % retracement of past six session gains at 48026

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