Sudeep Shah, head-technical and derivative research, SBI Securities
Despite a further cool-off in the Dollar Index below 105 levels and U.S. 10-year yields to 3.45%, global markets witnessed profit booking from higher levels due to the uncertainty ahead of Fed Policy scheduled next week.
After a vertical rise in the past month in Nifty, the index has taken a breather and witnessed consolidation throughout the week. Sector rotation was visible with strong broad-based buying in cement, metal, FMCG as well as banking and financial index, which hit a fresh all-time high on the back of declining crude prices.
The Volatility Index, India VIX, is at its lowest levels since September 2021 at 13.5, indicating that the volatility is gradually subsiding and providing comfort to the bulls.
Lower VIX is leading to increased stability, which has led to broader market participation and offers a lot of opportunities to make money in stock-specific trading and investing.
Chart patterns suggest 18,320-18,350 zone will act as a strong support for Nifty 50. Till the index sustains above the level of 18,320, we may witness rebound up to the level of 18,700-18,730, followed by 18,950 levels.
However, if the index slips below 18,320, weakness could persist up to 18,170-18,100. Options data suggests a broader trading range of 18,320-18,700 for the upcoming week with significant call writing witnessed in 18,600-18,700 and aggressive put writing in 18,600-18,500-18,400 strikes. That could lead to the index finding support at 18,320-18,350.
Traders and investors should adopt a stock specific approach, and should look to add quality stocks currently outperforming the markets. With interest rate cycle on an upward trajectory, one should prefer quality large caps and high-quality mid caps while staying away from small caps, especially the debt-ridden ones.
Based on the derivative open interest data and chart set-up, we expect stocks from the cement, capital goods, FMCG, banking and metal sectors to outperform. Positive trade-set-up is visible in select large caps such as Axis Bank Ltd., HDFC Bank Ltd., Hindustan Unilever Ltd., Larsen & Toubro Ltd. and ACC Ltd. On the mid-cap front, stocks like Au Small Bank Ltd., Colgate-Palmolive India Ltd., Multi Commodity Exchange of India Ltd., United Spirits Ltd. and Polycab India Ltd. could continue to witness strong buying interest in the coming week.
Short build-up was witnessed in stocks from IT, pharma and auto sectors which can lead to selling pressure at higher levels
If the index holds above the 18,400 levels, we can expect bounce back towards 18,700-18,750.