Dharmesh Shah of ICICI Securities advised investors to accumulate quality large-cap IT stocks in a staggered manner from a medium-term perspective.
He said in an interview with Moneycontrol that the Nifty IT index has already witnessed a 33 percent price correction (from its top) and is expected to observe a base formation and complete its time-wise consolidation in the next few quarters.
Technically, over the past two months Nifty 50 has formed a durable bottom. Hence, the Technical Head at ICICI Securities believes an ongoing breather would help the index form a higher base by cooling off the overbought condition after a 12 percent rally seen over the past three weeks and make the market healthy for the potential upside towards the 25,000 zone in the next couple of months.
Are you concerned about the market (Nifty as well as Bank Nifty) after Friday’s correction following a sharp rally? Or was it merely a shakeout before a potential breakout toward the 25,000 zone?
In the current scenario, tracking the geopolitical worries, we expect the market to remain volatile in the coming weeks. However, such a volatile scenario offers incremental buying opportunity as the historical data suggests, over the past three decades, there have been three major instances of escalations due to armed conflicts in India (i.e,. Kargil War, 26/11, Pulwama attack). On each occasion it formed a major bottom once anxiety around the event settled down and garnered decent returns in the subsequent three months.
Technically, over the past two months index has formed a durable bottom. Hence, we believe an ongoing breather would help index to form a higher base by cooling off the overbought condition after a 12 percent rally seen over the past three weeks and make the market healthy for the potential upside towards the 25,000 zone in the next couple of months.
What is your trading strategy for the upcoming week, following this week’s consolidation?
In the upcoming truncated week, we expect volatility to remain elevated, tracking geopolitical worries, wherein Nifty is likely to consolidate in the broader range of 24,500-23,300 zone. For the coming week, strong support is placed at the 23,300-23,000 zone. Meanwhile, on the upside, 24,500 would continue to act as immediate resistance.
Do you believe the Nifty Midcap and Smallcap indices will be able to hold their previous swing highs on a closing basis as support levels?
The Nifty Midcap index has outperformed the benchmark in the recent week, where it settled with ~2 percent of gains as compared to the benchmark gain of ~1 percent. The broader structure is intact, and the recent pullback after the sharp up-move of 18 percent and 21 percent, respectively, should be seen as a breather. Hence, we believe that both the Nifty Midcap and Smallcap indices should hold their previous swing highs. However, we expect volatility to persist amid the upcoming earnings season, where stock-specific action is likely to continue.
Is the chart of Nifty Auto indicating the possibility of further correction ahead?
The ongoing US tariff development has played a major role in the recent movement of the Auto index where further clarity related to the tariff on Auto and Auto ancillary would dictate the trend. Technically, the Nifty Auto index witnessed supportive efforts from the long-term rising channel (joining the lows of March 2022 & March 2023) and observed a sharp up-move of ~17 percent, which resulted in the short-term sentimental indicators to enter in the overbought zone. Going ahead, a short-term correction cannot be ruled out, where we can expect stock-specific action amid the upcoming earnings season.
Nifty FMCG has managed to close above its 200-day EMA. Do you expect this level to act as a strong support for the index?
Apart from Nifty Bank, Nifty FMCG showed resilience as compared to the benchmark index, where it did not breach the previous swing low and witnessed a gradual up-move of ~15 percent. However, we believe that a short-term pullback can be observed where a strong support is placed at 53,800, where we expect the index to form a higher base and eventually resume the uptrend.
Do you think Nifty IT needs to move above its previous swing high (March 25) to sustain a rally? Has the index potentially bottomed out?
The recent cool-off in US and China tariff-related development has resulted in a short-term breather in the IT index, where it bounced from the oversold territory. The historical data suggests that since inception, there have been four instances where the IT index has witnessed a maximum price-wise correction of 34 percent and time-wise correction of 6-7 quarters.
In the current scenario, the index has already witnessed a correction of 33 percent price-wise and is expected to observe a base formation and complete its time-wise consolidation in the next few quarters. The investors are advised to accumulate quality large-cap stocks in a staggered manner from a medium-term perspective.
Disclaimer: The views and investment tips expressed by investment 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.
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