Chartist Talks: Accumulate largecap IT stocks, Nifty may cool off more before getting upward toward 25,000, says ICICI Securities' Dharmesh Shah

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.

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