The Nifty 50 moved in a range of 180 points in the week ended September 9, closing at 17,369.25, a gain of 45 points from the previous week.
Mehul Kothari, AVP – technical research, Anand Rathi Shares & Stock Brokers, says the overall stock market trend is still strong and a breakout above 17,500 on the Nifty 50 could spur a fresh rally towards 17,800.
The IT sector rally seems to be losing steam and short-term traders might opt to book profits to buy again on dips, he told Moneycontrol in an interview. Edited excerpts:
Q: Do you expect the market to cool down a bit from here on before starting off the next leg of the rally? What are the levels to watch out for next week?
The week gone by proved to be a breather for the domestic markets after the stupendous rally of the previous week… The reason for this consolidation could be that the markets are overheated and another reason may be the truncated week. However, the overall trend is still strong and a breakout above 17,500 (on the Nifty 50) would reinvigorate a fresh rally towards 17,800.
On the other hand, 17,200 would be an intermediate support and a breach of this level might drag the index towards the 16,900 mark. So overall, for the coming weeks, 16,900-17,800 could be a bigger range for the index.
Q: The IT index rallied 22 percent in the past three months, the biggest gainer among sectors. What should investors do? Will the rally continue? What are the stocks to pick?
The rally in the IT sector seems to be losing steam. Short-term traders might opt to book profits in long positions and buy again on dips. Investors can continue to hold their positions since the long-term trend still looks strong for the entire sector. On the stocks front, one should look for fresh opportunities in stocks like Infosys, Tata Consultancy Services and HCL Technologies after a considerable dip in them.
Q: The midcap and smallcap indices moderately underperformed frontliners in the past three months. Will these indices give double-digit returns by December-end?
Leaving aside the past three months’ performance, year-on-year data shows that the broader market indices like the Nifty 500, Nifty Midcap 100 and Nifty Smallcap 100 have outperformed the benchmarks by a huge margin. We believe that the overall markets are in a strong bull trend and hence any dip from here on could be healthy and a much-needed correction. We expect outperformance by the broader markets by the year end, too.
Q: What are the key sectors to watch out for in the coming week?
The Nifty CPSE, Nifty Auto and Nifty Bank would gain traction in the coming weeks. Specifically, the Nifty Bank recently confirmed a major breakout on the daily chart and then retested the breakout. Now, it is poised to clear a new high once it sustains above 37,150 levels. We expect some outperformance from the above-mentioned sectors.
Q: Auto is the big underperformer of the past three months. Is it time to pick stocks or wait? What could be bought in the auto space?
As mentioned above, the Nifty Auto pack is looking lucrative at this point. The index has turned from the placement of 200 DEMA (day exponential moving average) and 200 DSMA (day simple moving average). In addition, there is a hidden divergence on the weekly Relative Strength Index. Thus, auto stocks might do well from current levels. From this space, we like Hero MotoCorp, Amara Raja Batteries and Eicher Motors the most.
Q: Telecom stocks also witnessed a sharp run-up. Do you think it will continue in the coming weeks?
Bharti Airtel and Reliance Industries might continue to remain strong in the coming week, but the momentum might be missing since they are on the verge of some cooling-off. Traders who are long can keep holding on to them.
Q: What are your top three stock ideas for the next 3-4 weeks and why?
BHEL: Buy | CMP: Rs 55.65 | Stop Loss: Rs 50 | Target: Rs 62
In May, BHEL confirmed a massive breakout above Rs 55 and rallied towards a peak of Rs 79.50. Thereafter, it corrected and has not retested the breakout zone. The stock has been consolidating for some time near this zone, which is also where its 200-day simple and exponential moving averages are placed.
There is a small-range breakout at the current level. The stock is poised for a fresh upside and the risk-reward ratio looks lucrative to go long. Traders are advised to buy the stock in the range of Rs 55-53 with a stop-loss of Rs 50 for a potential target of Rs 62 in the coming 3-4 weeks.
Inox Wind: Buy | CMP: Rs 103.70 | Stop Loss: Rs 95 | Target: Rs 120
Inox Wind has corrected over 25 percent from the recent swing high and is currently placed near the 61.8 percent Fibonacci retracement of the recent rally. The last weekly candle has seen early signs of a reversal from the fall and even the formation of a base near the 61.8 Fibonacci retracement forecasts the same.
The stock is comfortably placed above the mean of the Bollinger Bands on the weekly chart, affirming the overall bullish stance in the counter. Traders are advised to buy the stock near Rs 104 with a stop-loss of Rs 95 for an upside potential target of Rs 120 in 3-4 weeks.
Spencer’s Retail: Buy near Rs 110 | CMP: Rs 114 | Stop Loss: Rs 100 | Target: Rs 126
Since June 2019, Spencer’s has been consolidating in a broad range of Rs 60-110. In the recent session, the stock managed to break out from this range on a closing basis. This indicates a fresh upside from here.
In addition, the weekly RSI is about to break above Rs 70, which might add momentum to the stock. For a better risk-reward, traders are advised to buy the stock on dips near Rs 110 with a stop-loss of Rs 100 for an upside target of Rs 126 in 3-4 weeks.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.
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