Interview: RIL shares out of consolidation, can rally another Rs 200

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Friday’s 2.8% rally in shares of Reliance Industries (RIL) was apparently led by positive news flow on Jio as well as the consumer business, says Anand James, Chief Market Strategist at Geojit Financial Services. “This also means that we have come clean off the consolidation that has been playing out since February, potentially preparing it for another 200-point move,” he says.

Edited excerpts from an interview:

1) Nifty futures rollover at 70.61% in May series is encouraging for bulls. What are the outlook and key levels to watch out for in the June series?

We had gone into last week with 18660 as the objective, betting on a bullish harmonic pattern not being invalidated. We had a few scary moments early in the week, but the closing figures on each day kept on confirming the bullish view. But with a strong close that saw recent congestion resistances and peaks being conquered with ease, the chances of exhaustion need to be weighed in.

We are certainly going into the week-long heavy. More than 67% of stock futures attracted a long build-up in the expiry week, while FIIs hold more than 25% of the marketwide long positions in index futures. The week ahead hence will eye 18660 as the level to conquer, with fair prospects of extending the ongoing move and seeing 19070. Meanwhile, it would be fair to expect some rejection trades at 18660, for which reason, we will keep the downside marker at 18430.

2) Friday saw heavyweight RIL moving 2% higher. What might have triggered the rally and do you think the rally is sustainable in the next week?

Positive news flow on Jio, as well as Reliance consumer products, apparently boosted the sentiments for the stocks, which had been dominated by bears post the first half of May. The recovery from multi-week lows on Thursday spiked the risk appetite encouraging traders to chase prices higher, pushing it to the highest in May. This also means that we have come clean off the consolidation that has been playing out since February, potentially preparing it for another 200-point move.

3) IT stocks have been on an upward trend with midcaps leading the way in the last month. On the charts, which ones are poised for the upside?

IT stocks saw good traction this month with Midcaps and Smallcaps gaining more than 12% on average in May. We expect select Midcaps and Smallcap IT stocks to do well in the coming weeks and that includes Tataelxsi, Mphasis, Persistent, OFSS, and Coforge, etc. from the Midcap segment and Happiest Minds, Tanla solutions, Birlasoft, FSL, and Intellect designs, etc. from the Smallcap segment.

4) Why has Nifty Bank lagged behind and what should be the trading strategy for Nifty Bank traders now?

The major reason for the lag is because Nifty Bank had already reached within touching distance of the record peak last week itself, thus rendering different trading dynamics when compared with Nifty, which, despite a stellar last week, still has more than 2% wriggle room to build up more steam, before it meets the record peak. Secondly Nifty is more of a broad-based index as opposed to a thematic Nifty Bank index, allowing Nifty to find several winners turn by turn keeping the index’s momentum up. This is precisely what happened with Nifty last week, with Adani group stocks leading the surge first, followed by RIL as well as IT and metal stocks later. Having said that Nifty bank traders are assured of a wider trading range next week, with prospects of 44600 emerging, should 44150 be conquered. Alternatively, the inability to scale this peak or direct fall below 43830 could call for 43250, but a collapse is less anticipated.

5) Give us 3-4 top ideas for the week (with TP, rationale, and SL)

LODHA (Macrotech) (CMP: 1020)

View: Buy

Entry range: 996-1020

Target: 1080 – 1110

Stoploss: 974

The stock has been moving within a tight range of 50 rupees and is attempting to break above it with a strong bullish candle formed on daily charts. Also, the MACD has broken above the signal line indicating more upside for the stock in the coming days. We expect this stock to move towards 1080 and thereafter towards 1110 in the coming days. All longs may be protected with a stop loss placed below 974.

PERSISTENT (CMP: 5088)

View: Buy

Entry range: 5000-5088

Target: 5500 – 5800

Stoploss: 4750

The stock has been making higher tops and higher bottoms since September 2022 establishing a bullish trend. The momentum indicator MACD on weekly as well as monthly time frame has broken above the signal line indicating positivity in the near term. Trading at all-time high levels, we expect the momentum to continue and expect the stock to move towards 5500 initially and thereafter towards 5800 levels. A buy-on-dips approach may be employed with a stop loss placed below 4750 levels.

First published in Economic Times.

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