CMT charter holder Vinay Rajani of HDFC Securities believes infrastructure as a sector will outperform in the months to come. The Nifty Infra Index formed bullish engulfing pattern and is on the verge of breaking out from a bullish flag pattern on the monthly charts, he says in an interview to Moneycontrol.
On the Nifty50, after a sharp rally of nearly 2,000 points in last around one-and-a-half-months, the senior technical and derivatives analyst ruled out the possibility of the Nifty hitting the 18,000 mark in the August series itself as he sees traction shifting from derivative large-cap stocks to cash and mid-cap stocks.
With more than 16 years of rich experience in the financial markets, Rajani expects better times for the traders in August as mid-caps and small-caps could outperform the benchmark indices. Excerpts from the interview:
Having a strong recovery of nearly 2,000 points from June lows and crossing 200 DMA, do you think the Nifty50 may be inching towards 18,000 mark in August series?
The Nifty has risen almost 2,000 points from the bottom of 15,183 registered in June 2022. During this rally, Nifty has made higher top and higher bottom formation for three consecutive times on the daily charts. Nifty has also surpassed the major swing high of the previous top placed at 16,793. Nifty has now reached above its 50, 100 and 200 days EMA, which indicates bullish trend for medium to long term.
Oscillators like RSI and MFI (Money flow Index) have reached overbought zone on the daily chart of the Nifty.
After such a steep rise, we don't think, Nifty could test 18,000 in the of August series itself. We see traction shifting from derivative largecap stocks to cash and Midcap stocks. We expect better times for the traders in the August month as mid-caps and small-caps could outperform the benchmark indices.
Also read - Not much scope for appreciation in IT stocks: Ladderup Wealth Management MD
Nifty has got strong resistance at 17,300 odd levels, which happens to be 61.8 percent of the entire fall seen from 18,604 (all-time high registered in October 2021) to 15,183 (major swing low registered in June 2022). Supports for the Nifty are seen at 16,800 and 16,500.
Bank Nifty played quite supportive role in the recent recovery as the banking index itself gained 14 percent from June lows. Do you think it is a major driver for the Nifty50 in its further northward journey?
In the July series, Bank Nifty has seen large long build up, while Nifty witnessed just a short covering. Bank Nifty took a lead and managed to surpass the major resistance of previous swing high made in June, much in advance than Nifty. Bank Nifty has also taken out the crucial resistance of downward sloping trend line adjoining the major swing highs on the weekly charts.
However majority of the move has already come and therefore we don't expect Index to outperform Nifty with big margin. Resistances for Bank Nifty are seen at 38,134 and 38,765, while support for the same is seen at 36,250.
Do you think it is the right time to start buying IT stocks considering the underperformance in July series and as it is still between 38.2 percent and 50 percent Fib retracement area?
Yes, the kind of recovery, the Nifty IT index has shown after mid-July and the kind of technical setup index has developed on the medium term charts, we expect IT Index to outperform the Nifty in the month of August.
The Nifty IT index has broken out from the consolidation which held for previous seven weeks. Oscillators like RSI and MFI have turned bullish on medium term charts. Nifty IT index has crossed over 50 days EMA resistance on the upside.
If we were to consider the entire swing from an all-time high of 39,446 (January 2022 High) to recent low of 26,189 (July 2022 bottom), Fibonacci retracement of 38.2 percent and 50 percent levels are placed at 31,253 and 32,818. These resistance levels provide good upside from the prevailing levels of Nifty IT index.
What are the sectors that are likely to get into action mode in August series or are going to be drivers in August series?
Looking at the technical setups, we believe that sectors like IT, Infra and Realty will outperform.
Can Fin Homes was the biggest gainer in the July series, posting 36 percent gains. What are your thoughts and is it looking overbought on the technical front? What are your charts saying?
The stock has formed rounding bottom kind of formation on the weekly charts and has reclaimed the levels above its 200 days EMA (exponential moving average). Technical setup is still bullish and there is no sign of distribution on the charts yet.
Obviously after such a steep rise oscillator have turned overbought on short term parameters. Corrections are part of bullish trend and that can not be ruled out at current levels. 200 days EMA for stock is placed at Rs 540 odd levels, which could act a strong support in the stock. Positional trend of the stock is expected to remain bullish.
The Nifty Infra index has taken a strong support at around 23.6 percent Fib Retracement. So do you think the sector is at the beginning of bull run now and can surpass its record high before December 2022?
Yes. Infra is one of the sectors, which we believe will outperform in the months to come. Index has surpassed the crucial resistance of its 100 and 200 days EMA, which was coinciding almost at the same levels of 4,800.
Index has formed bullish Engulfing pattern and is on the verge of breaking out from the bullish “Flag” pattern on the monthly charts.
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