The Nifty India Digital Index, introduced in January 2022, is finally showing signs of a shift towards bullish momentum, according to technical analysts.
The index, which was introduced by the National Stock Exchange to track India's digital theme, witnessed a sharp 30 percent correction within the first five months of its inception. It was dragged down by stocks like Zomato, Info Edge, Nykaa and tier-1 IT companies like TCS, HCL Tech and Infosys.
Zomato, Info Edge and Nykaa command 8.5 percent, 7.7 percent and 5.15 percent weightage in the index, respectively.
"Over time, the index has formed a base within the price range of 4,900 to 5,600. This consolidation phase signifies a period of stabilization and accumulation," Viraj Vyas, CMT, technical & derivatives analyst - institutional equity, at Ashika Stock Broking said.
In recent trading sessions, there have been attempts to break out above the upper threshold of the consolidation range.
"The index is hovering near the neckline and a weekly close above 5,750 will confirm a trigger of this pattern with targets around 6,400 and 7,000 thereafter," Gaurav Bissa, vice president, Incred Equities added.
Which stocks are driving the rally?
Heaviest weight Zomato, that has rallied over 45 percent in the past two month, has propelled the index higher. Shares of Zomato hit a fresh one-year high on Rs 80 on June 12.
The stock was recently added to Jefferies' India long-only as well its Global long-only portfolios. The global brokerage has set a target price of Rs 100 on the stock and expects the platform's delivery revenue to grow at a 25 percent CAGR over FY22-26.
On May 31, the stock's weight in MSCI index was increased which has also boosted sentiment among investors. According to Nuvama Institutional Equities' calculations, the weight addition triggered inflows of $59 million into the stock.
Also Read: Zomato Q4 loss narrows, boosts hopes of profitability
Another stock that has propelled the index higher is One97 Communications, the parent of Paytm. The stock is up over 93 percent from its record low. A recent trigger for the stock has been RBI's approval for First Loss Default Guarantee (FLDG) programme.
The FLDG is a popular product that fintechs in the country use to form partnerships with banks and non-banking financial companies (NBFCs).
According to analysts, the risk-reward is turning more positive for Paytm due to strong revenue momentum, possible upside in operational leverage and limited competition.
"We see Paytm's margins improving on back of revenue mix shiſt towards high margin Soundbox & lending revenues. We estimate adj EBITDA margins to improve from -2 percent in FY23 to 8 percent by FY26," according to Bank of America.
Also Read: Paytm scales 9-month high with big volumes, likely to march towards Rs 850
Another index constituent Tata Communications has rallied over 30 percent in the past one month and contributed to the upmove in the index. The company aims to double its data revenue to Rs 28,000 crore by FY27, growing at 19 percent a year.
The company aims to achieve the target by strengthening leadership in India, growing wallet share through enhanced customer relevance and increasing international market share, it said during an analysts' meet.
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