After crashing to multi-year lows, benchmark indices have registered a strong comeback. Nifty has jumped 50 percent to hit 11,300-mark for the first time since March 3 this year.
Even though the sharp rise is seemingly ahead of the fundamentals, technically, the rally was on expected lines and is likely to move towards 11,400 levels soon, experts feel.
"Equity benchmarks behaved precisely in line with our expectations as the Nifty logged a resolute breakout from the intermediate resistance of 10,600 and eventually surpassed our target of 10,900. This made us confident of revising target upward to 11,400," ICICI Securities said.
In the coming month, the brokerage expects the index to maintain its positive momentum but the upside will be capped at 11,400.
The benchmark index saw a consistent rally in the previous six consecutive weeks, rising more than 12 percent.
"Key point to highlight during the past six week's up move is that the Nifty has seen a sharp up move that hauled the weekly stochastic oscillator to the overbought territory (currently at 96). Therefore, the possibility of a temporary breather at higher levels cannot be ruled out," said the brokerage.
However, ICICI Securities believes a breather from here on should not be construed as negative. Instead, it should be capitalised on to accumulate quality stocks amid the ongoing Q1FY21 result season, the brokerage advised.
As per its relative rotation graph projection and technical ranking, cyclicals (IT, Pharma, Telecom, Agri and Chemicals) are expected to outperform henceforth.
The brokerage is neutral on Infra and Realty, while Consumption and Metals could also be bargain buys now, it feels.
Sun Pharma, Ajantha Pharma, Procter & Gamble Health, Pidilite Industries, Trent, Bajaj Electricals, Berger Paints, L&T Technology Services, Tech Mahindra HDFC Bank, Axis Bank, DCB Bank, Maruti Suzuki, Eicher Motors, Bharat Forge, Cochin Shipyard, Mishra Dhatu Nigam, Container Corporation and HPCL are its top picks, said ICICI Securities.
The brokerage believes the Nifty has strong support at 10,600 as it is the confluence of a) as per the change of polarity concept last month's resistance of 10,600 would now act as support, and b) 38.2 percent retracement of current upmove (9,544-11,240), is placed at 10,592.
Currently, as both Midcap and Smallcap indices have already rallied for 10 weeks, ICICI Securities expects broader markets to maintain the same rhythm by extending the ongoing rally, in fact, it could outperform benchmarks.
Both, midcap and small-cap indices, despite participation in the rally from March lows, still underperformed on a year-to-date basis in addition to past two years of underperformance. The Nifty50 fell 8.5 percent while the Nifty Midcap lost over 10 percent and Smallcap 15 percent YTD.
On the technical ground, ICICI Securities expects the midcap and smallcap space to catch up and outperform the benchmark based on the following thesis:
- During the ongoing major upmove from March low of 7,511, the Nifty has almost retraced 80 percent of CY20 decline (12,430-7,511), 11,445, while Nifty midcap, smallcap indices retraced only 61.8 percent of CY20 decline;
- Constant improvement has been observed in the market breadth. Currently, around 50 percent constituents of the Nifty midcap and smallcap indices are sustaining above their long term 200-day SMA compared to last month's reading of around 38 percent, which signifies broadening of participation.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.