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Caution! 'Mid and small-cap indices near overbought levels'

Agarwala of YES SECURITIES is bullish on Godrej Properties, Bata India and L&T in the shot-term

July 19, 2021 / 11:32 AM IST
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Mid and Smallcap Indices continue to hit fresh record highs as optimism of economic activity picking up pace are driving stock prices higher in this space, Aditya Agarwala, Senior Technical Analyst, YES SECURITIES said in an interview with Moneycontrol’s Kshitij Anand.

Q) Despite volatility bulls managed to hold on to gains throughout last week pushing Nifty50 above 15900 levels. What led to the price action?

A) Bulls finally managed to push the Nifty50 index beyond the key hurdle of 15,900 this week after several failed attempts in the past.

This price action could be attributed to a strong rebound in the IIP data released for the month of May which stood at 29.3 percent mainly on account of manufacturing, electricity, and mining sectors.

Strong growth numbers from the manufacturing sector indicate that the economic activity is picking up pace.


However, rising inflation posts a bit of a concern, and markets could remain muted if the inflation figure remains at an elevated level beyond the Reserve Bank of India’s (RBI) threshold level of 6 percent.

Q) We are inches away from hitting 16000 which has acted as a stiff resistance level for Nifty in the past. What should traders/investors be doing – add more long positions post the breakout or book some profits?

A) The Nifty index has successfully managed to close beyond the neckline of the Ascending Triangle pattern placed at 15,900 after multiple failed attempts previously which is a bullish sign and an indication of a continuation of the uptrend.

However, the breakout hasn’t led to a runaway rally as momentum indicators such as RSI on shorter time frame chart has turned southwards from a cluster of recent highs at around 70-73 levels which suggests that the trend is losing steam.

Therefore, going ahead, traders should closely watch for a sustained trade above 15,900 levels in the coming week which could trigger a move to levels of 16,200.

Traders should also closely monitor moves in the India VIX which is now approaching key support area of 9-10 and this support zone usually acts as a reversal point.

A reversal from this support zone may trigger a sharp rise in volatility which could, in turn, lead to choppiness and bouts of corrections.

Q) In line with benchmark indices, small & midcaps indices also touched fresh record highs. What is driving price action in the broader markets?

A) Mid and Smallcap Indices continue to hit fresh record highs as optimism of economic activity picking up the pace are driving stock prices higher in this space.

However, one should be cautious as both the Indices are approaching overbought territory on higher time frame charts suggesting that the up move is reaching its peak and a temporary pause or correction cannot be ruled out in the coming trading sessions.

Q) Realty index surged more than 7% last week. What is leading to the price action in that sector and top stocks which are looking attractive? If someone wants to invest in the sector should they wait for a dip or invest at current levels?

A) The Nifty Realty Index surged 8.58 percent in the week gone by, and has broken out from a 10-year long consolidation phase triggering a massive shift in the trend of the realty sector favouring the bulls.

Strong sales numbers from most of the real estate companies and optimism of a stouter demand going ahead are driving the prices higher.

A close beyond 375 levels on the monthly timeframe would trigger a move towards 520-600 levels on the Nifty Realty Index.

Traders can look put money right away in the realty stocks and also add on declines as this breakout has further legs on the upside. Top bets within the sector would be Godrej Properties, DLF, Sunteck Realty and Prestige Estates.

Q) TCS, Infosys and Wipro have come out with their results. Which one is looking better on the charts?

A) Wipro stands out as compared to TCS on charts. TCS has turned downwards from the neckline of a triangle pattern and is now approaching key trendline support at 3120, breakdown from this trendline could trigger sharp corrections in the stock.

Wipro on the other hand continues to make higher highs and higher lows indicating strong uptrend. A sustained move beyond the previous pivot high of 564 will extend the uptrend to levels of 590-600.

Q) Your top 3-5 trading ideas for the next 3-4 weeks?

A) Here is a list of trading ideas for the short term:

Godrej Properties: Buy| LTP: Rs 1577| Target: Rs 1700| Stop Loss: Rs 1500| Upside 7%

The stock has resumed an uptrend after breaking out into an all-time high territory following a narrow consolidation phase. Technical indicator RSI remains in the bull territory suggesting extended upside in the stock

Bata India: Buy| LTP: Rs 1615| Target: Rs 1750| Stop Loss: Rs 1550| Upside 8%

The stock has resumed its uptrend after taking support at the key 50-Day moving average. Further, it has broken out from a Triangle pattern resistance neckline on good volumes. RSI is also suggesting an extended uptrend in the coming sessions.

L&T: Buy| LTP: Rs 1619| Target: Rs 1770| Stop Loss: Rs 1540| Upside 9%

The stock has resumed its uptrend after the breakout of an Ascending Triangle pattern neckline placed at 1590 levels.

Further, volumes have been good in the breakout confirming an extended uptrend in the coming sessions.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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