MC Interview | Accumulate IT stocks, expect positive breakout soon, says Ashish Kyal

The Nifty moved very much in line with that of Elliott wave forecast as we discussed in an earlier interview and crossed above 19,111 levels. We have been talking about a bullish outlook since March 27, when Nifty was breaking above 17,350 and also in subsequent interviews talked about why in June 2023 Nifty will touch its lifetime highs. This shows that the Elliott wave technique is working very well even in Indian markets.

The overall momentum is still intact in the market. We are in wave (v) and as the momentum is strong we do see extensions. In simple terms it means that ongoing wave pattern can result into further upside targets. Fibonacci target as per Fibonacci extension of the current wave comes near 19,360 levels. There is also a Gann level of 19,391. These Gann levels work extremely well. The lower Gann level was 18,838 and when prices decisively broke above this level after few days of consolidation it opened up levels of 19391. So, for the current up move zone of 19,330 – 19,391 becomes immediate hurdle.

As prices are at lifetime highs, there are no price action areas or past data. So, one has to rely on these forecasting tools of Elliott wave, Fibonacci projections and Gann to understand the targets. Short-term indicators like RSI (relative strength index) are overbought on hourly time frame and so it is better to use dips to buy as long as support near 18,900 level remains intact.

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What is your Elliott Wave reading on the Bank Nifty?

Bank Nifty, after forming a top on May 30, was consolidating or correcting until June 26. Post that, prices completed wave 4 and started wave 5 higher. This was also published on Moneycontrol with Elliott wave charts on June 19, when Bank Nifty was only near 43,600 levels and from there we have seen a rise to 44,750 levels.

The Bank Nifty trend remains bullish as long as the support near 44,180, which is a gap area, is protected. Upside targets for the Bank Nifty is near 45,200 levels but short-term consolidation is possible to relieve the overbought state. We are currently in wave (iii) of (v) and it is possible to start two days of correction in form of wave (iv) of (v) post which again the up move will resume.

So, buy on dips is better strategy on Bank Nifty for good risk reward as long as 44,000 levels remain intact.

Nifty IT surpassed the 200-day EMA on the daily charts after consolidation breakout, and 50-week EMA on weekly charts. Will it get into strong momentum soon or should one continue with sell on rally?

Nifty IT is actually whipsawing around 200-day EMA as it has gone flat and prices are oscillating above and below it. During sideways market, moving average gives false signals and it is better to use Bollinger Bands during such instances.

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Nifty IT is currently trading at 29,550 levels and on weekly time frame Bollinger Bands breakout can be seen above 30,900 levels. Over short term on daily chart prices are already breaking out of daily Bollinger Bands but for medium term breakout move above 30,900 is must.

It is better to accumulate IT stocks at current levels as we can see strong outperformance from midap IT space. And largecap stocks can also start leading from here. Nifty IT index is moving in a range for exactly a year now and we are expecting positive breakout soon in this space.

Technically, too, is the FMCG a portfolio sector?

FMCG has been one of the strongest sectors that has taken leadership role during the current market rally. The sector looks little heated up but there is no reason why stocks from FMCG sector should not be in portfolio.

Any correction or dips can be used to enter into this sector but as we have started seeing other sectoral outperformance as well there can be better risk reward opportunities in other sectors that are just giving breakout like Nifty Pharma.

As per your Elliott Wave analysis, do you expect continuation in rally in the Nifty Midcap?

Nifty midcap and smallcap sectors broke to lifetime highs even before the Nifty index. The rally can continue in this sector from medium term perspective. Short-term profit-booking is not ruled out but corrections can be used to enter into stocks from midcap space.

Also read: Can Nifty sustain its mojo in July F&O series? Here's what rollovers say

Do note that when we enter into a secular Bull market it is midcap and smallcap stocks that provide better reward and much higher risk adjusted returns.

I think India is just entering into the next bull market and short term headwinds or correction will provide opportunity to investors who can buy and hold the stocks during the entire rise of Bull trend!

Two stocks that can be looked for double-digit return next week?

Indian Bank and Persistent Systems are showing good breakout with pick up in volumes and can possibly outperform in this week. Support for Indian Bank is near Rs 281 with upside target of Rs 310. Buy on dips can be better strategy. For Persistent Systems, we can expect a move to Rs 5,300 or higher with support at Rs 4,850 levels.

Follow Ashish Kyal on Twitter - @kyalashish

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