Trump bottom in place? Dharmesh Shah of ICICI Securities explains why Nifty at 24,000 in May, picks this strategy for this week

Do you think the Nifty may find it difficult to reclaim and sustain the 23,000 mark?

Despite initial gap down opening, the Nifty 50 index staged a strong rebound tracking announcement of 90 days pause on tariff. Consequently, Nifty recouped 5 percent from week's low and settled the week on a flat note at 22,828.

With current structural improvement, we believe index has undergone a base formation while absorbing host of negative news and set the stage for next leg of up move towards 24,000 in coming month. Hence, focus should be on accumulating quality stocks to build a medium-term portfolio onset of Q4 earning season.

Do the charts convince you that the “Trump bottom “is already in place?

We expect volatility would remain elevated tracking tariff development. However, in last week, despite ongoing global volatility, Nifty managed to hold the key support of 21,900 which has been held on multiple occasions (on a closing basis) over past one year. The current strong recovery supported by positive divergence on the weekly chart, indicates that bottom is in place.

In addition to that, the historical statistical data suggest that, since 2002, within a structural bull market, price wise average maximum corrections have typically been to the tune of 18 percent (barring 2004 & 2006). Meanwhile, time wise such corrections last for average 8-9 months. In current scenario, we believe index is approaching price and time wise correction as index has already corrected 17 percent over past seven months. Historically, buying in such scenario has been rewarding, delivering an average return of 23 percent over the subsequent twelve months.

Our positive bias is further validated by following observations:
a) Market Breadth: The market breadth has been witnessing positive divergence as Nifty 500 has formed a lower low while % of stocks above 200-day SMA have formed a higher low as currently 15 percent stocks (Nifty 500 Universe) are above 200-day SMA compared to last month reading of 7 percent.
b) The US Dollar index is on the verge of breakdown from two years low of 99.50
c) Brent crude oil is hovering around $63 a barrel after bouncing from $58 levels
d) S&P 500 VIX witnessed sharp decline after recording high of 60, indicating anxiety around tariff uncertainty would settle down soon.

Considering the current chart structure do you see the Bank Nifty Holding the 51,000-mark going forward?

Financial index has witnessed relative outperformance in this entire up-move. While sailing through the global volatility, Banking index managed to hold March lows and now forming a higher base, highlighting relative outperformance that bodes well for next leg of up move towards 53,200 in coming weeks. Meanwhile, the psychological mark of 50,000 will serve as an immediate support being confluence of 200-day EMA and 50 percent retracement of last up move (47,700-52,063).

Has Double Bottom formed in the Nifty Midcap 100 index?

Yes, despite last week’s gap down opening, midcap index has defended March low of 46,865 and staged a strong recovery. Consequently, past five weeks consolidation is now taking a shape of potential double bottom formation in the vicinity of 100-week’s EMA. Investors should note that, the emergence of double bottom formation after a decline, signifies shift in trend. Hence, a decisive close above 52,926 would confirm breakout from this double bottom formation and open the door for next leg of up move.

What is your Trading strategy for the current week, given that volatility remain elevated?

We expect volatility would remain elevated in the current week tracking tariff development. However, amid volatility, Nifty managed to hold the key support of 21,900 which has been held on multiple occasions, which also coincides with 100-week EMA. Going forward we expect investor should adopt buy on dips strategy to construct the portfolio from medium term perceptive.

However, tracking the recent sharp recovery, possibility of temporary breather cannot be ruled out. Hence, any dip towards 22,300 should not be construed as negative instead that should be considered as buying opportunity. Thereby, investors should focus on domestic themes rather than global once wherein focus should be on accumulating quality stocks (backed by strong earnings) in a staggered manner. Meanwhile, traders should refrain from taking leveraged position.

Which sector are on your radar for the current week?

On the sectoral front, Banking, IT, Metals, Power, Defence, Pharma and Infrastructure would be in focus.

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