1) Nifty ended a tumultuous week with a decent gain. Do you see some signs of more volatility ahead after the Modi government allots portfolios and policy direction is announced? What are the key levels to watch out for?
VIX has almost halved, from the peaks seen on the election results day, suggesting that volatility expectations have significantly eased. However, VIX is still above the levels seen a month before the results, indicating that caution has not been entirely abandoned. Nifty is now at record peak, post a three consecutive day rise that erased a single day drop of over 8% during last week. Standard deviation studies point to potential onset of exhaustion next week, which could see a pull back towards 22600 atleast. Alternatively, a direct rise above 23350 would call for 23538 or 24130, but we see limited prospects for the same this week.
2) IT and FMCG stocks worked well as a defensive play in the week. As the momentum returns, do you see underperformance ahead?
Both are usually seen as defensives when broader market struggles for a reasonable period of time, but it is hard to see them as short term defensives. But what works in favour of IT is that they have been an underperformer lately which gives them a low base to bounce from. Among IT index stocks, 60% are trading above 50DMAs and 70% of the stock are trading near monthly highs which is pointing towards one more push higher in IT stocks in coming days before profit booking emerges. We could see buying in TCS, Hcltech, Wipro, LTIM, Techm and Persistent. As far as CNX FMCG index is concerned, we have seen a weekly Supertrend and MACD break. Only 20% stocks are trading near monthly high and 33% near weekly high indicating that more room is there on the upside. 40% of the FMCG index stocks have seen fresh 52 week highs this week underlining the strength in the sector. Expect Nifty FMCG index to move towards 61500 in the next few weeks and such a move is expected to be backed by buying in Hindunilvr, Britannia, Godrejcp, Tataconsum and Marico which collectively forms around 42% of FMCG Index.
3) How do things look like for PSU stocks? Any buying ideas at lower levels?
Nifty PSE index had gained more than 100% in the last one year. Only 35% of the Nifty PSE index stocks saw 14 day RSI dipping below 50 and so strength in heavyweight is still evident. Even though 65% of stocks are trading below 20DMA after the recent pull back, the fact that 70% of stocks are trading above 50DMA is lending support. The best strategy would be to pick up stocks on dips. Stocks like ONGC, HAL, Powergrid, BEL, PFC, Recltd, BPCL and IRCTC are good bets to play the next round of upside but entry may planned in a staggered manner.
4) Do you think Nifty PSU bank will outperform Nifty Bank in the week?
Major contribution to the Nift Bank last week came in from HDFCBank, Axisbank, Kotakbank and Bankbaroda which together forms 50% of BankNIfty. SBI and ICICBank, which forms 39% of BankNIfty, are yet to catch up to the gains of its peers in the BankNifty. While 92% stocks are trading above 20DMA, 33% stocks saw fresh 52 week highs this week suggesting that momentum has not been distributed as yet. In contrast, 50% of the PSU bank stocks saw fresh 52 week highs this week, while 58% are having RSI within 50-60 showing strength. Our sense is that there is not much to split the choice between these segments.
5) Give us your top ideas for the week.
TVSMOTOR (CMP – 2407)
View – Buy
Targets – 2530 – 2650
Stoploss – 2279
Minor pull back that we saw in March looks to be over and the bounce back that started in April has gained pace this week. Technically, we have seen a weekly Supertrend break and a MACD signal break hinting positive days ahead for the stock. The 14 week RSI is around 68 lending more strength to the upside. We expect the stock to move towards 2530 and 2650 in the next few weeks. All longs may be protected with stoploss placed below 2276 levels.
AARTIDRUGS (CMP – 511)
View – Buy
Targets – 530 – 548
Stoploss – 480
Since April the stock has been moving within a symmetrical triangle chart pattern which was broken recently. Apart from this, MACD signal break backed by RSI above 61 is favoring positivity. We expect a move towards 530 and 548 in coming few weeks. All longs may be protected with stoploss placed below 480 levels.
First published in Economic Times