Benchmark indices Sensex and Nifty extended gains for a second consecutive session on Friday. Continued strength in IT stocks, which rose for a fourth straight session, along with buying in auto, metal and PSU banking stocks, supported the rally.
Analyst Sudeep Shah, Vice President and Head of Technical & Derivatives Research at SBI Securities, interacted with ETMarkets regarding the outlook for the Nifty IT, FIIs, and an index strategy for the upcoming week. The following are the edited excerpts from his chat:
Nifty closed the week on a high, gaining for 2 straight days. What’s your outlook for next week?
Nifty staged a strong comeback as easing global headwinds revived investor sentiment. Since the beginning of August, Nifty had corrected nearly 10.5%, falling from 24,774 to 22,179, largely driven by a sharp surge in US bond yields from 4.7% to a multi-year high of 5.36%. This triggered significant foreign fund outflows, resulting in Nifty closing in the red for eight consecutive weeks.
However, the tide turned this week as US bond yields cooled to 5.09%, while crude oil prices also witnessed a temporary pause in their upward trajectory. The recovery was spearheaded by frontline heavyweights, particularly IT stocks, with Nifty IT emerging as the week's best-performing sector, gaining nearly 11.72%.
Technically, Nifty formed a strong bullish candle on the weekly chart following a Doji formation in the preceding week, signalling a potential trend reversal from a crucial support zone. However, the lack of broader market participation remains a concern, as the recovery has largely been restricted to select large-cap counters.
The spotlight now shifts to the earnings season, with HDFC Bank, ICICI Bank and Axis Bank scheduled to announce their results over the weekend. These three banking heavyweights collectively account for 22.8% of Nifty and 42.85% of Bank Nifty, making their earnings crucial for the market's next directional move.
Looking ahead, the 22,800–22,750 zone remains a crucial support. As long as Nifty sustains above 22,750, the recovery is likely to extend. On the upside, 23,400–23,450 remains the immediate resistance zone, a decisive breakout above which could propel the index towards 23,650, coinciding with its 100-day EMA.
What is your view on Bank Nifty?
The banking benchmark index Bank Nifty extended its pullback rally for the second consecutive week and formed a bullish candle with a long lower shadow on the weekly scale, reflecting buying interest at lower levels.
The index is currently trading above its 20-day EMA, which has started to turn higher, indicating strengthening short-term momentum. Meanwhile, the daily RSI is hovering near the 52 mark and remains in an upward trajectory, suggesting improving bullish sentiment.
Market participants will closely track the upcoming earnings announcements from HDFC Bank, ICICI Bank, and Axis Bank over the weekend. Given their combined weightage of 22.8% in Nifty and 42.85% in Bank Nifty, the results are likely to play a crucial role in determining the index's near-term direction.
Technically, the 56,000-56,100 zone, coinciding with the 50-day EMA, is expected to act as a key resistance area. A sustained move above 56,100 could trigger a fresh upward rally towards 56,600, followed by 57,300 in the short term. On the downside, the 55,300-55,200 zone is likely to provide strong support.
Nifty IT gained 12% this week. Are stocks in an overbought zone and what’s the strategy for Tech Mahindra, TCS, Infosys?
Nifty IT has gained around 15.5% from the low of 28,232 recorded on September 29. The RSI has rebounded sharply from the oversold territory and is currently hovering around 73, indicating strong bullish momentum. The ratio line in the Nifty IT/Nifty ratio chart has also broken out of a falling parallel channel, highlighting the sector’s improving relative strength and outperformance against the benchmark index.
Additionally, Nifty IT is firmly placed in the leading quadrant of the RRG, indicating strong relative strength and momentum. On the daily chart, the index is on the cusp of breaking its lower-low, lower-high structure. The 32,000–32,200 zone is the immediate resistance. A decisive and sustained move above this zone could pave the way for a continuation of the pullback in the near term.
Tech Mahindra has decisively broken above its previous swing high of Rs 1,687, recorded on July 29. The RSI and MACD line have turned sharply higher, indicating improving bullish momentum. The 1,700–1,690 zone is likely to act as immediate support, and the stock is likely to extend its pullback as long as it sustains above this zone.
TCS witnessed a sharp pullback, supported by a healthy rise in trading volumes, and closed around its 200-day EMA. The RSI has broken out of a downward-sloping trendline and moved higher, indicating renewed bullish momentum. The Rs 2,410–2,400 zone is likely to act as strong support, and the stock could extend its pullback as long as it sustains above this zone.
Infosys found strong support in the Rs 980–990 zone and staged a sharp recovery. The stock has reclaimed its 20-, 50- and 100-day EMAs, indicating an improvement in its near-term price structure. The MACD slope has turned higher, accompanied by rising green histogram bars, signalling strengthening bullish momentum. The Rs 1,120–1,110 zone, around the 100-day EMA, is likely to act as immediate support, and the stock could extend its upward move as long as it sustains above this zone.
What do FII positions indicate currently?
FIIs turned net buyers for the first time in 15 trading sessions, purchasing equities worth ₹1,166 crore on October 16 in the cash segment. This comes after 14 consecutive sessions of outflows totalling Rs 84,138 crore. Sustained buying interest from FIIs could support a further extension of the ongoing pullback in the index. However, it is too early to conclude that FII sentiment has undergone a meaningful shift.
Meanwhile, the FII long-short ratio in index futures improved to 11.32% on October 16 from 8.95% on October 12. During the same period, net index futures contracts declined from 2.95 lakh to 2.72 lakh, indicating short covering. However, a few sessions of short covering are unlikely to trigger a meaningful shift in overall market sentiment. Sustained short covering will be crucial for a more durable recovery. While early signs of improvement are visible, a durable trend reversal remains unconfirmed.
What’s your view on India VIX?
India VIX has been consolidating in the 11.96–15.68 range since the beginning of October. The index has largely remained between its 50-day and 200-day EMAs, reflecting a sideways bias. The RSI recently peaked at 65.29 and has edged lower since then, further indicating a lack of directional momentum. The 15.7–16 zone is likely to act as immediate resistance.
A decisive breakout above this zone could trigger a rise in volatility in the near term, potentially hampering the ongoing pullback in the benchmark index. On the downside, the 12.8–12.5 zone is likely to act as immediate support. A sustained move below this zone could signal further cooling in volatility, potentially supporting an extension of the ongoing pullback in the benchmark index.
Do you think largecaps would continue their dominance as seen in the past week as compared to midcaps?
Yes, we believe selective large-cap stocks are likely to continue outperforming in the near term. The recent market recovery has been largely driven by frontline large-cap counters, while the Nifty Midcap 100 and Nifty Smallcap 100 have continued to lag and underperform the benchmark indices.
Among sectors, large-cap IT stocks remain technically strong and are expected to maintain their positive momentum. In addition, the focus will be on heavyweight banking stocks such as HDFC Bank, ICICI Bank, and Axis Bank, which are set to announce their quarterly results. Given their significant weight in the benchmark indices, their earnings performance could further support large-cap leadership in the short term.
Which sectors could display outperformance in the coming week?
From a relative strength perspective, Nifty IT, Private Banks, and Media are displaying strong technical setups and are expected to continue outperforming the broader market in the near term.
Conversely, Nifty CPSE, PSE, FMCG, and PSU Banks continue to exhibit relative weakness and are likely to underperform the broader market over the short term.
Could you name 5-6 stocks that are looking strong on the charts?
Technically, Indian Hotel, Bharti Airtel, Naukri, Nykaa, HAL, Eternal and TVS Motors are looking strong on the charts.
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