April has historically been a favourable month for investors, with the Nifty 50 index generating an average return of 1.94 percent and closing positively 56 percent of the time, according to Viraj Vyas, a technical and derivatives analyst for institutional equities at Ashika Group.
On sectors and stocks to pick for April, stocks in the defence sector such as Hindustan Aeronautics, Bharat Dynamics, and Bharat Electronics appear compelling, Vyas told Moneycontrol in an interview.
Additionally, Dr Reddy's Laboratories and Alkem Laboratories present a low-risk, high-reward investment opportunity as they show bullish intent, said Vyas, who has over seven years of experience and a deep understanding of technical analysis, capital markets and behavioural finance. Edited excerpts:
Do you expect a strong rally in April, taking the Nifty beyond the 18,000 mark?
Since December 2022, the Nifty 50 index has been following a falling channel and it recently discovered support around the lower limit of the channel. At this level, there are two strong support zones: a) 16,800, which was a prior swing low in the weekly chart, and b) a bullish gap area from July 2022.
Despite the FII short at an all-time high of 84 percent as of Wednesday's close, the DII long position is also at a record high of 87 percent, preventing a significant decline. While FIIs may seek to book profits, the index could attempt a relief rally towards the 17,600-17,800 range, although fresh bullish participation may only come if the index manages to sustain above that level.
Additionally, April has historically been a favourable month, with the index generating an average return of 1.94 percent and closing positively 56 percent of the time.
Do you see the Nifty Auto getting back above the 13,000 mark in April?
Nifty Auto has seen a brilliant run from March 2022 lows of 9,500 till the recent swing high of 13,500. Currently, the index is consolidating time- and price-wise, and while I don’t expect an immediate upside here, I would like to point out that it has been fairly resilient, sustaining near its life highs during tumultuous market conditions.
On the weekly chart, it is trading in a Broadening Wedge pattern, which can drive it towards the 12,500-12,600 zone but only sustaining above this zone is likely to trigger a fresh leg of a bull run in the auto space.
In which three stocks would you want to take long positions in April and what’s the strategy for them?
I will be looking at JBM Auto, Dr Reddy's Laboratories and Godrej Consumer Products. These stocks have shown relative strength in a choppy market and I expect this strength to continue.
JBM Auto has seen a massive consolidation and is trading around life highs. A breakout above Rs 650 can drive the stock higher towards Rs 720-750 levels with key support around the Rs 600 mark.
Dr Reddy's Labs too has been consolidating and has formed an ascending triangle pattern – a breakout above Rs 4,600 can take the stock higher towards the Rs 4,900-5,000 level with key support at Rs 4,450.
Godrej Consumer Products has formed a Cup and Handle pattern and is trading above the neckline (Rs 945 level). The stock may target Rs 1,060-1,080 with key support at the Rs 940 mark.
Do you see a high probability of the Nifty IT breaking September 2022 lows in the coming months?
Nifty IT was the belle of the ball post-March 2020 and while it topped out in January 2021, the index is currently forming a base and is correcting time-wise before starting the next leg on the upside. The price action of the last few weeks was definitely not encouraging, especially with the large and midcap names getting hammered.
Having said that, I firmly believe that the index is in an accumulation phase and the September 2022 lows will be held as the index will take more time before starting the next leg of a bull run. On the flipside, smaller names like Newgen Software and KPIT Technologies are looking well placed as the street expects growth potential and margin expansion in such names.
PB Fintech seems to be creating a Flag and Pole pattern, above all key moving averages. Do you expect a significant rally in the stock price?
The stock is exhibiting an uptrend on smaller degree charts, having surpassed both its 21-day and 200-day EMA (exponential moving average), but the larger weekly and monthly charts depict a pessimistic outlook. Although it has reached a nine-month high, the stock is currently encountering a critical resistance level at Rs 650, which was a bearish gap from June 2022.
Furthermore, the RSI (relative strength index) shows a negative divergence. The stock is in a state of recovery and has the potential to climb higher, but this will depend on its ability to remain above the 200-day EMA at the Rs 550 level.
Which are the key sectors to watch in April?
The Nifty PSE index remains at historic highs, and stocks in the defence sector such as Hindustan Aeronautics, Bharat Dynamics, and Bharat Electronics appear compelling. The Nifty Infra sector has also been benefiting from strong tailwinds since the budget, and companies like Larsen & Tourbro, KNR Constructions, and cement stocks present attractive investment opportunities.
Additionally, Nifty FMCG stocks like Varun Beverages, Radico Khaitan, ITC, and Godrej Consumer Products are displaying strength and potential.
Financial services stocks like Axis Bank, Cholamandalam Investment, and ICICI Bank are expected to rebound, while pharma stocks such as Abbott India, Dr Reddy's Laboratories, and Alkem Laboratories present a low-risk, high-reward investment opportunity as they show bullish intent.
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