Nifty likely to head towards 11,400; 3 stocks that could return 4-12% in 6 months

Dharmesh Shah

Equity benchmarks scaled back to record highs in July 2018, exhibiting resilience in the face of rising trade war concerns and depreciation of the rupee against the US dollar.

The Nifty, during the previous month, rallied beyond our projected target of 10,930 for July. In the process, the index made a strong base at 10,550, which acted as a launch pad for it to rally towards its record high of 11,171.

The bullish breakout above 10,930 has resulted in a conclusion of a five-month-long triangular pattern, signalling fresh upsides in coming weeks for Nifty.

Going forward, we expect the Nifty to head towards 11,400 in coming months as it is the confluence of:

• Up move from May low (10,417) would achieve equality with April rally (9950-10930 = 980 points) at 11,397
• The 123.6 percent retracement of entire 2018 decline (11,171- 9,950) is placed at 11,459

We have revised the short term support base higher to 10,850 levels as it is the confluence of the following technical observation:

• 50 percent retracement of the rally off June 2018 lows at 10,850
• Value bullish gap on July 10 at 10,880
• Value of rising trend line connecting December 2016 and March 2018 lows placed at 10,800

Structurally, in line with our view, broader markets accelerated their upward momentum as they formed higher high-low on weekly chart after finding support from a lower band of falling wedge, corroborating with northward inching stochastic oscillator, signifying renewed buying demand from key value area.

Since March 2018, subsequent declines of the Nifty Midcap and Smallcap have been contracting, indicating diminishing corrective bias.

Going ahead, elongated up move along with contracting declines would indicate structural turnaround, auguring well for breaking out of falling wedge pattern (drawn adjoining subsequent highs of January-May and projected from subsequent lows of February-June), around 19,000 and 7,500, respectively.

This makes us believe that going ahead, both indices would make a higher base formation. Hence, any dip from here on should be capitalised to accumulate quality stocks as we expect quality midcap stocks to outshine amid the ongoing Q1FY19 result season.

Here is a list of top three stocks which could give 4-12 percent return in the next 6 months:

State Bank of India: Buy| CMP: Rs 286| Target: Rs 298| Stop Loss: Rs 254| Return 4% Time Frame 6 months

The share price of State Bank of India (SBI) has seen a strong up move during 2016-17, rallying from Rs 150 to Rs 351. The corrective decline in the last nine months from the October 2017 all-time high of Rs 351 saw the stock testing the major support area around Rs 240-250.

The stock has seen a major base formation in the last three months around the support area and has recently resumed a fresh up move, thus providing an entry opportunity for the medium term prospective.

Post the base formation, the stock has recently resumed up move and has formed a higher peak and higher trough on the weekly chart. It has led to a higher base formation signalling a reversal of the corrective trend and resumption of the fresh up move in the stock.

The stock during April-May 2018 witnessed a base formation around Rs 240-250 as it is the confluence of:

• 50% retracement of the entire rally of the last two years (| 149-351) is placed at | 249
• the long-term 200 weeks EMA, which acted as strong support for the stock is currently placed around Rs 257

During the current decline, the stock has already taken six weeks to retrace just 80% of the previous four week’s up move from Rs 240 to Rs 289.

Slower retracement signals corrective nature of the current decline and formation of a higher trough signalling positive price structure.

We expect the stock to continue its current up move and head towards Rs 302 as it is 61.8% retracement of the entire decline (351-233). This also coincides with the price parity of the previous up move from Rs 233 to Rs 289 as projected from a recent trough of Rs 250

Sun Pharma: Buy| CMP: Rs 555| Target: Rs 622| Stop Loss: Rs 532| Return 12%| Time Frame 1 month

The share price of Sun Pharma has seen a sharp rebound in the first half of June 2018 after forming a bullish double bottom around Rs 435. In the last five weeks, it is seen consolidating in a narrow range thus forming the base for the next up move.

The stock during mid-June 2018 has registered a resolute breakout above the falling trend line Joining the high of August 2016 (855) and February 2018 (609) placed at Rs 540 levels.

The index in the last five weeks is consolidating in a range above the trend line breakout area and the 52 weeks EMA signalling higher base formation in the stock

Weekly MACD in an uptrend and has recently moved into positive territory thus supports the bullish bias in the stock

We expect the stock to head towards 622 levels in the coming month as it is the 61.8% retracement of the entire CY 2017 decline (729 to 433)

Nestle India: Buy| CMP: Rs 10,233| Target: Rs 11,450| Stop Loss: Rs 9,690| Return 12%| Time Frame 6 month

Nestle India has given a breakout above the eight weeks consolidating a range of 9,450 to 10,200 in mid-July 2018 and has been consolidating above the same in the last two weeks. We believe the breakout from the consolidation range offers fresh entry opportunity with favorable risk/reward from a medium-term perspective.

In the entire price movement since May 2018, the share price oscillated in the sideways broader range of 9,450 to 10,200, where it cooled off the overbought situation (at 89) of a stochastic oscillator formed due to earlier nine weeks rally (7566 – 9890).

A shallow price wise correction along with almost similar time-wise correction indicates a robust price structure that augurs well for next leg of up move.

Going ahead, we believe the stock has strong support base around 9720, as it is a confluence of:

• 38.2% retracement level of the last leg of up move (8660 -10550), placed around 9800 levels
• The 50 days EMA is placed around 9,720 levels

Based on the aforementioned technical observations, we expect the stock to enter into a sustainable uptrend from here on and head towards target of 11,450 over the medium term as it is the 123.6% Fibonacci extension of the April to June 2018 up move (8660 to 10060) measured from the end of June 2018 higher bottom of 9500 projects upsides towards 11450 levels

(Disclaimer: The author is Head Technical at ICICI Direct.com Research. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.)