While Bank Nifty is at a new record peak, having outperformed Nifty on Friday, Nifty is yet to clear recent peaks. While Small and midcaps have been on a strong upmove, Nifty is just coming off a multi-week sideways range. It remains to be seen if this divergence rings caution or is just a case of sectoral reallocation providing strength and sustenance to an uptrend.
Nifty lags Bank Nifty
The Bank Nifty has marched ahead, outpacing the Nifty, which is a more broad-based index and hence lacked the traction post the surprise 50 bps rate cut by the Reserve Bank of India. Our eyes are on 58,400, but four hours of consolidation after Friday’s initial rise, point to the fact that we are not in a one-way street yet.
Adding to the concern, the RSI is still below the levels seen when Bank Nifty hit April’s peak. This divergence does not call for a reversal yet, but a cautious approach is warranted at the start of the week, with a downside marker placed at either 56,400 or 55,920.
Meanwhile, the outperformance in the SMIDs was visible, as most rose above the previous week’s highs when compared to Nifty 50 constituents. Only 50% of the Nifty 50 stocks closed above their respective 20-day SMA on Friday, 74.8% of small-cap constituents closed above this benchmark on Friday. But 50% of Nifty 50 stocks closed within the day’s high on Friday, but in the case of Nifty Smallcap 250, only 10% of constituents did so. This suggests that there is caution floating around, and a consolidation may be expected before a vertical rise unfolds.
Bullish Breakout in Nifty Financial Services: Momentum Building for 27,450
The Nifty Financial Services Index has closed at an all-time high, forming a strong weekly bullish Marubozu candle. Notably, the close is above a horizontal resistance level that has been intact since April, indicating underlying strength.
On the daily chart, the MACD is on the verge of crossing above the signal line, while the SMIO has moved above the zero line—both signalling potential upward momentum. A move toward the 27,450 level appears likely in the coming weeks.
From a derivatives perspective, 79% of the sector’s stocks witnessed long build-up on Friday, and 52% showed long build-up on a week-on-week basis, reflecting bullish sentiment. The average RSI for financial services stocks hovers around 50, suggesting there is still room for further upside.
We expect key stocks such as Bajaj Finance, Kotak Bank, Axis Bank, Bajaj FinServ, Chola Finance, and Shriram Finance to lead the rally.
Nifty Auto Index Maintains Bullish Momentum
The monthly reversal in the Nifty Auto Index, which began in April, remains intact. The weekly Supertrend breakout observed a fortnight ago has successfully absorbed recent profit booking, reinforcing the bullish setup.
On the daily chart, the index has broken above a declining trendline resistance and closed with a strong green candle. The SMIO has crossed above the zero line on the daily scale and is on the verge of doing the same on the monthly timeframe—both signalling strength in the ongoing trend.
Nifty outlook
Since the second half of April, the Nifty has been through two stages of consolidation, the latter one having stretched over three weeks. Friday’s spike has taken us to the upper band of this range. Nifty appears well primed to stage a breakout and embark on the 25,460-26.200 objective that we have been eyeing for the last fortnight.
That said, neither has the Bollinger band widened, nor has momentum indicators started showing strength to support a vertical rise. This reluctance partly stems from Nifty lagging Bank Nifty, and even the SMIDs. We will hence not be chasing prices right away on Monday, but instead wait for a pull back that will hopefully end before 24863. Major downside marker may be placed at 24,640.
First published in Financial Express
