Podcast | Stock picks of the day: Nifty likely to consolidate till May 23; Small & midcaps eyed

After a correction of 748 points from the highs of 11,856 (18th April 2019 High) to 11,108 (14th May 2019 Low), the Nifty has recouped all the losses in the span of last three sessions.

Till last week, Nifty Midcap and Smallcap indices were falling for the past 5-7 weeks respectively. There were many stocks, which turned extremely oversold on the short to medium term charts.

The Nifty50 ended the week on a strong wicket and signalled a bullish reversal by the end of the week. Large caps have been outperformers and still look strong on the charts.

But, we see an opportunity for taking longs in Midcap and Smallcap segment from current levels. The risk-to-reward ratio looks highly favourable in that segment after huge carnage was seen in the last one and a half years.

The Nifty Midcap and Smallcap indices are still down 20 percent and 33 percent from their respective all-time highs levels registered in January 2018.

Though the Exit polls indicate a clear majority for the NDA government, actual results are yet to come out, which will be announced on May 23. So, there could be some consolidation in benchmark indices in the next two sessions.

The bigger picture on the charts indicates that Nifty has formed a bullish “Cup and Handle” pattern on the weekly charts, indicating a continuation of the primary bullish trend.

We believe that the range starting from 11,426 to 11,591 would remain as a strong support zone for Nifty50. The Midcaps and Smallcaps seem to have bottomed out and are all set to narrow down the performance gap with largecaps.

Dips should be bought into, and good quality midcaps should be accumulated from the current levels; however, the upside target for Nifty is seen at 12,430 levels.

Here is a list of top three stocks which could give 10-16 percent return in the next three to four weeks:

State Bank of India: Buy| LTP: Rs 344.7| Target: Rs 400| Stop-Loss: Rs 320| Upside 16 percent

The stock is on the verge of registering a new all-time high above Rs 351. This move would result in a long-term 10-year consolidation breakout.

The stock is trading well above all the important moving averages. We could see higher tops and higher bottoms well intact while Oscillators and Indicators are showing strength in the current trend.

Considering the technical evidence discussed above, we recommend buying the stock at the CMP and average it at Rs 330 levels for the target of Rs 375, and keep a stop loss at Rs 320 on a closing basis.

Axis Bank: Buy| LTP: Rs 782| Target: Rs 860| Stop-Loss: Rs 750| Upside 10 percent

The stock has registered a new all-time high at Rs 791 on May 20. It has given a “Flag” pattern breakout on the weekly charts as well.

The stock has also broken out from the last 17 quarters’ consolidation range and is trading above all the important moving averages. Higher tops and higher bottoms are well intact. Oscillators and Indicators are showing strength in the current trend.

Considering the technical evidence discussed above, we recommend buying the stock at the CMP and average it around Rs 770, for the target of Rs 860, and keep a stop loss at Rs 750 on closing basis.

Larsen & Toubro: Buy| LTP: Rs 1451| Target: Rs 1,650| Stop-Loss: Rs 1,350| Upside 14 percent

The stock is on the verge of registering a new all-time high above Rs 1,460. This move would also result in a breakout from last 16 months’ consolidation range. Oscillators and Indicators are showing strength in the current trend.

Considering the technical evidence discussed above, we recommend buying the stock between CMP and Rs 1,400 for the target of Rs 1,650 and keep a stop loss at Rs 1,350 on a closing basis.

(The author is Technical and Derivative Analyst at HDFC Securities)

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