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Last Updated : Aug 30, 2018 08:35 AM IST | Source: Moneycontrol.com

Podcast | Stock Picks of the Day: 2 largecaps that could return up to 11%

Going forward, we expect the Nifty to maintain buoyancy and eventually head towards 11,925 levels in coming weeks given the robust price structure.

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Todays L/H

Dharmesh Shah

ICICI Direct.com Research

The Nifty took a breather on Wednesday, amid profit booking in recently run-up stocks, ahead of the expiry of August series. The broader markets relatively outperformed as the Nifty Midcap index gained 0.5 percent and the Nifty Smallcap index inched up 0.1 percent for the session.

The price action formed a small bear candle, signifying profit booking at record highs after the 400 points rally in the preceding seven sessions.


Going forward, we expect the Nifty to maintain buoyancy and eventually head towards 11,925 levels in coming weeks given the robust price structure.

We recommend using a dip towards 11,600-11,650 as an incremental buying opportunity, which would pave the way to head towards a revised target of 11,925 in coming weeks as it is a confluence of:

a) 161.8 percent external retracement of the entire decline of February-March (11,171-9,951) placed at 11,925
b) upper band of rising channel encompassing up move off June-end low of 10,558, placed around 11,890

Structurally, the current leg of up move, off July low of 10,604, is larger in magnitude (11,760-10,604=1,156 points) compared to March-May up move (10,929–9,952=977 points).

The elongated up move along with shallow price corrections signifies a robust price structure. This structural improvement makes us confident that the Nifty would hold the key value area of 11,470 in coming weeks as it is a confluence of:

a) 61.8 percent retracement of recent up move (11,340–11,621) at 11,450

b) Positive gap (11,470-11,500) on August 20

The Nifty Midcap maintained a higher high-low formation on the weekly chart supported by broad-based participation. This bodes well for an extension of the current up move.

The current pullback off from July low (2,159 points) is larger in magnitude compared to the previous pullback witnessed during March-May (2,027 points), suggesting a structural improvement.

Going forward, we expect the Nifty Midcap to relatively outperform the benchmark as the implied target of falling wedge pattern at 20,320 (18,960-17,600=1,360) coincides with May high of 20,329. Hence, one should focus on accumulating quality midcap stocks.

Here is a list of top three stocks that could return 10-16% in the next 6 months:

ITC: Buy| CMP: Rs 312| Target: Rs 345| Stop Loss: Rs 285| Return 11%| Time Frame 6 months

The share price of ITC has generated a resolute breakout above the rectangle pattern, thereby confirming strong base formation around Rs 250, in turn resulting in a resumption of the primary uptrend.

Currently, the stock is consolidating at a higher level to work off the excess formed during last month’s sharp up move. We believe that the recent price activity signals a continuance of ongoing primary uptrend thereby offering a fresh entry opportunity for medium term investors.

During July 2018, the stock witnessed a strong rally gaining from 260 to 307 level. In the process, it gave a breakout from the past one year’s consolidation.

After a strong breakout rally, the share price is seen taking a breather over the past three weeks. The temporary pause after a sharp rally has helped the share price to cool off the overbought conditions and in the process built a higher base, which would now act as a launch pad for next leg of the rally.

This overall price action has taken a shape of a bullish Flag formation. A resolute breakout from the bullish Flag pattern during the current week suggesting a continuance of the recent uptrend after the conclusion of the temporary breather that provides a fresh entry opportunity with a favourable risk-reward.

We believe that the stock has a strong base around Rs 295 levels as it is the breakout area of the last one-year consolidation that also coinciding with bullish gap area of 27th July 2018 placed around 295 levels.

The overall price development makes us believe the stock is set to resolve higher towards our target of 345 being the 80% retracement level of the entire secondary phase of correction (368-250), placed around 344.

State Bank of India: Buy| CMP: Rs 309| Target: Rs 341| Stop Loss: Rs 278| Return 10%| Time Frame 6 months

The share price has rallied 30 percent during mid-July–August 2018 despite a host of negative news, signifying stock resilience. As a result, it maintained a higher peak and trough formation on the weekly chart signalling persistent buying demand at elevated levels.

We believe the corrective consolidation over the past two weeks has helped prices to cool off the overbought situation. The recent price activity signalled a fresh entry opportunity for medium term investors to ride the next leg of the up move within the ongoing uptrend.

In line with our view, the share price has witnessed a robust up move during mid July–August 2018. Since then, it has undergone a secondary corrective phase.

Currently, prices have been consolidating in the range of 290–309 after retracing 50% of the last leg of up move (250–326), placed at 288.

We believe the ongoing healthy consolidation would help the stock to form a higher base formation, boding well for a resumption of the primary uptrend.

Thus, we expect the stock to hold the key value area 278 in coming weeks, as it is a confluence of 52 weeks EMA placed at 275 and the 61.8% retracement placed around 279.

We expect the stock to resolve higher from here on and head towards 341 as it is a confluence of multi-year resistance of 351 coinciding with a 52-weeks high of 351.

Majesco: Buy| CMP: Rs 515| Target: Rs 598| Stop Loss: Rs 448| Return 16%| Time Frame 6 months

The share price of Majesco during July 2018 has formed a higher base around 400 levels being the confluence of the 61.8% retracement of the previous major up move from 304 to 603 and the previous breakout area of September 2017.

The stock has seen a sharp up move from the support area of 400 and the entire price activity of the last four weeks has taken the shape of a Bullish Flag as can be seen in the adjacent chart.

The stock is on the cusp of the bullish flag breakout and offers a fresh entry opportunity to ride the next leg of up move in the stock.

Time-wise, the stock retraced 80% of its previous 12-weeks decline (581-401) in just four weeks signaling strength and reversal of the corrective trend and resumption of fresh up move.

The weekly MACD has generated a bullish crossover above its nine periods average thus validates the positive bias in the stock.

The current up move in the last four weeks was supported by the strong volume of almost double of the 10 weeks average volume of 4 lakhs share per week signalling larger participation in direction of the trend.

We expect the stock to continue with its positive trend and head towards 603 levels as it is the measuring implication of the Flag breakout which also coincides with the January 2018 high placed at 603 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.
First Published on Aug 30, 2018 08:17 am