The index is likely to extend the ongoing consolidation in the broad range of 12,000–11,600 in the coming weeks. It will help the index form a higher base by cooling off from the overbought situation developed on the weekly time frame.
The index has already taken 11 sessions to retrace 90 percent of preceding 11 sessions up move post exit poll low (11,600). The slower pace of retracement signifies prolonged consolidation and healthy price structure.
Therefore, we believe that one should not panic in the ongoing prolonged consolidation (12,000–11,600) and instead capitalise on the extended breather towards the major support area of 11,500-11,600 as buying opportunity in quality stocks
The broader market is undergoing a healthy consolidation as Nifty midcap, Nifty smallcap indices have been witnessing a slower pace of retracement.
Going ahead, we expect Nifty midcap and smallcap indices to form a higher base and resolve out of long-term downward sloping trend line in coming weeks, leading to an acceleration of upward momentum.
Hence, we advise investors to accumulate quality midcap stocks from a medium-term perspective
Here is a list of top two stocks which could give 17-18 percent return in the next six months:
Bharat Electronics: Buy| LTP: 107.65| Target: Rs 127| Stop Loss: Rs 99| Upside – 18 percent| Time Frame six months
In the last week of May, the share price of Bharat Electronics registered a breakout above the six-month consolidation range (Rs 100-73), signalling a reversal of the corrective trend and offering a fresh entry opportunity.
The stock has rebounded after forming a higher trough around Rs 85 and witnessed a faster retracement of the last falling segment after 25 session decline (Rs 102-85) was completely retraced in just seven sessions highlighting a positive price structure.
The recent breakout area of Rs 100 is likely to act as a major support in the coming month. The stock has recorded a “Golden Cross” on the daily chart, on May 20, when the 50-days SMA crossed above long term 200-day SMA, suggesting a turnaround in trend direction.
We expect the stock to continue its current up move and head towards Rs 127 as it is the measuring implication of the range breakout (100-73= 27 points) added to the breakout area of Rs 100 which signals upside towards Rs 127 levels in the medium term.
KSB: Buy| LTP: Rs 703.85| Target: Rs 824| Stop Loss: Rs 638| Upside 17 percent Time Frame six Months
The stock has been forming a base for the last five months at the lower band of the rising channel since CY 2015. We believe that the stage has been set for prices to resolve higher and head towards Rs 824 in the coming months, thereby offering a favourable risk-reward setup.
We expect secondary corrective phase to get anchored around Rs 640 as last 16 months’ correction retraced 78.6 percent retracement of preceding 16 months’ up move (Rs 543-938), around Rs 630 coincided with 200-week lows EMA, at Rs 660.
A slower pace of correction signifies robust price structure, auguring well to resolve higher and resume primary up trend.
In a nutshell, aforementioned technical evidence suggests the stock will resolve higher and head towards Rs 824 as it is 61.8 percent retracement of entire corrective phase (Rs 938-638), at Rs 824 coincided with November 2018 high of Rs 825 levels.
(The author is Head Technical, ICICI Direct.com Research)
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